Mortgage Lending On The Slide, Perhaps

The RBA data for November 2017 was released today.  The financial aggregates shows that mortgage lending momentum is easing a little, but more slowly than bank lending, suggesting that the non-bank sector is taking up much of the slack. In addition, more loans were reclassified in the month, taking the total to an amazing $61 billion. Total mortgages are now at $1.71 trillion, another record. Overall growth is still much higher than wage growth, so household debt levels will continue to climb.

The monthly trends are pretty clear, if noisy.

The 12 month view irons out the noise and shows that investor lending has fallen to an annual rate of 6.5%, compared with owner occupied lending at 6.3%.   Total housing lending grew at 6.4%. Business lending is lower, at 4.7% and personal lending down 1.2%.

Looking at the values involved, total mortgage lending rose to $1.71 trillion, and investor loans fell to 34.1% of balances, still too high.

Two interesting points to make. First, it is clear mortgage momentum is being support by the non-bank sector, as the RBA aggregate data is significantly higher than the ADI growth from APRA. We have plotted the gap between the two on a 12 month rolling basis.

Second, there is still more “tweakage” in the numbers as loans are re-classified.  Total to date now $61 billion, a large proportion of investor loans!

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $61 billion over the period of July 2015 to November 2017, of which $1.2 billion occurred in November 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

 

 

Lending In Sept 2017 Still Fixated On Housing

The RBA has released their financial aggregates to September 2017.  The data confirms the growth is still in the mortgage sector, with both owner occupied and investment lending growing quite fast, significantly faster than productive business lending. So expect to see household debt rise still further. The settings are just not right to create sustainable economic growth, rather they still support a debt driven property splurge.

There was a significant volume of loans switched in the month – $1.4m are shown in the aggregates table, but are corrected in the growth tables, which is why investor lending is reported more strongly there.

Overall lending for housing rose 0.5% in the months, or 6.6% for the year, which is higher than the 6.4% the previous year. Personal credit rose slightly in the month and down 1.% in the past year.  Lending to business rose just 0.1% to 4.3% for the year, which is down from 4.8% the previous year.

Owner occupied lending grew $5.5bn or 0.5% to $1.11 trillion while investment lending rose $1.9% or 0.3% to $583 billion. Lending to business rose just $0.3 billion and personal credit rose $0.3 billion or 0.2%, the first rise since February 2017.

The share of investment lending remained at 34.3% of lending for housing, while the share of all lending to business fell to 32.7%.

Looking at the adjusted RBA percentage changes we see that over the 12 months investor lending is still stronger than owner occupied lending, both of which showed a slowing growth trend, while last month growth in business lending continued to ease.

The RBA noted that:

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $59 billion over the period of July 2015 to September 2017, of which $1.4 billion occurred in September 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

RBA Says Housing Credit Still Growing

The latest RBA data on credit, to August 2017 tells a somewhat different story to the APRA data we discussed already. There were clearly adjustments in the system [CBA in particular?]  and the non-bank sector is picking up some of the slack.

Overall housing credit rose 0.5% in August, and 6.6% year-ended August 2017. Personal credit fell again, down 0.2%, and 1.1% on a 12 month basis. Business credit also rose 0.5%, or 4.5% on annual basis. But overall lending for housing is still growing.

Here are the month on month (seasonally adjusted) movements. Owner occupied lending up $17.5 billion (0.68%), investment lending up $0.8 billion (0.14%), personal credit down $0.4 billion (-0.24%) and business lending up $4.2 billion or 0.47%.

As a result, the proportion of credit for housing (owner occupied and investor) still grew as a proportion of all lending.

Another $1.7 billion of loans were reclassified in the month. This will give an impression of greater slowing investment loan growth as a result.

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $58 billion over the period of July 2015 to August 2017, of which $1.7 billion occurred in August 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

Home Lending Reaches Another Record

The RBA Credit Aggregates for July 2017 have been released. Overall credit rose by 0.5% in the month, or 5.3% annualised. Within that housing lending grew at 0.5% (annualised 6.6% – well above inflation), other Personal credit fell again, down 0.1% (annualised -1.4%) and business credit rose 0.5% (annualised 4.2%).

Home lending reached a new high at $1.689 trillion. Within that owner occupied lending rose $7 billion to $1.10 trillion (up 0.48%) and investor lending rose just $0.09 billion or 0.15% to $583 billion.  Investor mortgages, as a proportion of all mortgages fell slightly.

The adjusted movement data shows that investor housing is still at around 7%, higher than owner occupied loans and still way too high. Personal credit continues to languish, while business lending remains at around 4%. All growth rates for the financial aggregates are seasonally adjusted, and adjusted for the effects of breaks in the series

The more volatile monthly data shows a slight easing in housing credit growth this month, and a fall this month in business lending.

The RBA notes that:

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $56 billion over the period of July 2015 to July 2017, of which $1.4 billion occurred in July 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

So more adjustments, either from mis-classification, or borrowers proactively switching from investment loans to get better rates.  This rate of switching has not slowed down, so it looks like a continuing process rather than a clerical error.

We suspect non-banks are picking up some of the investor lending slack as ADI’s conform to the regulators guidance. A quick calculation, comparing RBA and APRA data provides some validation:

 

Home Lending Powers On (If You Believe The Figures)

The latest credit aggregates from the RBA to June 2017 shows continued home lending growth, up 0.5% in the month, or 6.6% annually. Business lending rose 0.9%, or 4.4% annually, and personal credit fell 0.1% or down 4.4% over the past year. However, they changed the seasonally adjusted assumptions, so it is hard to read the true picture, especially when we still have significant reclassification going on.  In original terms housing loans grew to $1.69 trillion, another record.

Investor home lending grew 0.5% or $3.13 billion, but this was adjusted down in the seasonal adjusted series to 0.2% or $1.13 billion. Owner occupied lending rose 0.9% or $9.83 billion in original terms, or 0.7% or $7.34 billion in adjusted terms. Business lending rose 1.2% of $11 billion in original terms or 0.9% of $7.61 billion in original terms. The chart below compares the relative movements.

The RBA says:

Historical levels and growth rates for the financial aggregates have been revised owing to the resubmission of data by some financial intermediaries, the re-estimation of seasonal factors and the incorporation of securitisation data.

… so here is another source of discontinuity in the numbers presented! The movements between original and seasonal adjusted series are significant larger now, and this is a concern. We think the RBA should justify its change of method. Once again, evidence of rubbery numbers!

The annualised growth rates highlight that investor lending is still strong relative to owner occupied loans, business lending recovered whilst personal finance continued its decline.

The more volatile monthly series show investor loans a little lower, while owner occupied loans rise further, and there is a large inflection in business lending.

We need to note that now $55 billion of loans have been reclassified between owner occupied and lending over the past year – with $1.3 billion switched in June. This is a worrying continued trend and raises more questions about the quality of the data presented by the RBA.

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $55 billion over the period of July 2015 to June 2017, of which $1.3 billion occurred in June 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

Finally they tell us:

All growth rates for the financial aggregates are seasonally adjusted, and adjusted for the effects of breaks in the series as recorded in the notes to the tables listed below. Data for the levels of financial aggregates are not adjusted for series breaks. The RBA credit aggregates measure credit provided by financial institutions operating domestically. They do not capture cross-border or non-intermediated lending.

So, given the noise in the data, it is possible to argue that either home lending is slowing, or it is not – all very convenient. The APRA data we discussed earlier is clearly showing momentum. Growth is still too strong.

It also makes it hard to read the true non-bank growth rates, but we think they are increasing their relative share as some banks dial back their new business.  Taking the non seasonally adjusted data from both APRA and RBA we think the non-bank sector has grown by about $5 billion in the past year to $115 billion. APRA will need to have a look at this, under their new additional responsibility, as we suspect some of the more risky lending is migrating to this less well regulated sector of the market.

Investor Loan Growth Outpaces Owner Occupied In March

The latest data from the RBA, the credit aggregates, shows that loan growth was strongest for investment home loans, at an annualised rate of 7.1% compared with owner occupied loans at 6.2%. Business lending fell again, and personal credit continues to fall.

The proportion of lending to business fell to 32.8% (a record low) and the proportion of home lending for investors sat at 34.9%

Total credit grew $9.7 billion (up 0.4%), owner occupied lending rose $6.7 billion (up 0.6%), investment loans rose $2.5 billion (up 0.4%) and lending to business up $1 billion (up 0.1%).

However, the RBA adjusts these numbers to take account of $1.2 billion restatement between owner occupied and investment loans. Overall housing rose 6.5% in the past 12 months, way above income growth, so higher household debt once again.

Comparing the RBA and APRA data, it looks like the share of non-bank investor home lending is rising, and of course these lenders are not under the APRA regulatory control, but fall under ASIC (and they are not required to hold capital, as they are not ADIs). This is a loophole.

The RBA notes:

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $51 billion over the period of July 2015 to March 2017, of which $1.2 billion occurred in March 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

Housing Credit Climbs In February

The February 2017 data from the RBA today shows that overall credit grew 0.3% in the month, with housing up 0.6% to an annual 6.4% whilst personal credit and business lending both fell.

On a 12 month annualised basis, lending for investment housing grew the fastest at 6.7%, whilst owner occupied lending grew by 6.2% and there was a fall in business lending, down to 3.7%.

The monthly series showed that investor lending grew faster (0.6%) than lending for owner occupation (0.5%). Business lending took a dive and other personal credit was lower.

Turning to the month on month movements, (not RBA adjusted), owner occupied housing grew faster than investment lending.  In the month, owner occupied loans grew $9.3 billion whilst investment loans grew $2.6 billion, seasonally adjusted.

Finally, here is the total value lent by category. Total seasonally adjusted balances for housing was $1.64 trillion, of which investment lending comprised 32.9%, or $575 billion. Lending for owner occupation was $1.071 billion.

Lending for business, as a proportion of all lending fell again.

The RBA notes:

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $50 billion over the period of July 2015 to February 2017, of which $1 billion occurred in February 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

We will discuss the APRA data which is also out today, in a separate post.  We doubt the changes by APRA announced today will have much impact on the market, although the continuing out of cycle rate hikes by the banks might.

The Fundamental Disconnect

You only have to look at the trends on housing credit growth and wage growth to see the problem. Using data from the ABS and RBA, we can see that in recent times credit to households for housing has been growing significantly faster than wage growth (note the two different scales) whereas in the 2000’s, before the GFC hit, wage growth was higher, and able to support such credit growth.  No wonder household debt is at a record high.

The other perspective is the cash rate, which has been cut to an all time low, and we see wage growth and rates trending in the same direction.

Whilst you can argue that lower rates means repayments are lower for many, the gearing effect of larger mortgages off the back of the home price boom, has created a major problem, with many households close to the edge at current low interest rates, and with low wage growth, no sign of this pressure relenting. Indeed, if rates rise (either officially or from market pressure) significantly more households will be stressed. Many will also struggle to pay off the capital.

These charts, together should have been a warning to regulators. The settings are wrong.

I think you can argue that we should be aiming for credit growth to match income growth, to stop the rot – but consider the impact on the banks (who rely on mortgage growth for profitability) home prices (a reduction in mortgage availability will force home prices lower) and housing affordability (credit rationing would lift the price of loans).

Even small adjustments might well create the conditions for a property market crash, with all the consequences that follow.

There is an old joke, when a driver stops to ask a local for directions, and the answer is “if I were you, I would not start from here”. The regulators have the same problem!

Lending Growth All About Housing

The latest RBA credit aggregate data shows that total lending grew in January 2017 by $14 billion, or 0.5%. Of that housing rose to $1,637.4 billion, up 1% or $15.2 billion. Business lending and unsecured personal finance fell. Clearly housing is where the action is, and given this data and strong clearances, home prices, especially in the eastern states are likely to continue to rise. It also explains the RBA’s recent comments and APRA’s tighter lending guidance. Household debt climbs ever higher, with the risks to match! No way can the RBA cut the cash rate on these numbers.

We see investment lending remained strong at $5.3 billion (0.9%) whilst owner occupied loans grew by $10 billion (1%). Investment loans were one third of all housing loans written.

The adjusted annual growth rates for housing loans was 6.4%, with owner occupied loans growing at 6.3% and investment loans 6.6%. Business lending was at 4.7% and personal credit a negative 1.3%.

The monthly movements are more noisy, but housing rose 0.5%, the same as a year ago.

The RBA notes:

All growth rates for the financial aggregates are seasonally adjusted, and adjusted for the effects of breaks in the series as recorded in the notes to the tables listed below. Data for the levels of financial aggregates are not adjusted for series breaks. Historical levels and growth rates for the financial aggregates have been revised owing to the resubmission of data by some financial intermediaries, the re-estimation of seasonal factors and the incorporation of securitisation data. The RBA credit aggregates measure credit provided by financial institutions operating domestically. They do not capture cross-border or non-intermediated lending.

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $49 billion over the period of July 2015 to January 2017, of which $1 billion occurred in January 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

We will look at the APRA ADI data later.

Credit Growth Strong In December; But By How Much?

The RBA released their Credit Aggregates to December 2016 today.  Total housing was a new record at $1.62 trillion.

The headline statement from the RBA says housing grew 0.5% in the month and 6.3% annually, personal credit fell 0.1%, down 1.3% annually, and business credit role 1.1% in December, making 5.6% annually. All these are well above inflation, and wage growth.

Within housing, investment lending continued to grow up 0.8%, compared with 0.4% for owner occupied lending, making annual changes of 6.2% and 6.4% respectively.  So, once again we see growth in the investment sector moving up, which is in line with our surveys.

The monthly data shows the spike in both investment lending for housing and other business lending. This dataset, says the RBA has been adjusted for series breaks, to reflect as accurate picture as possible.

Now, things get interesting if we look at the more detailed data, which does not include series adjustments, although they are seasonally adjusted. Clearly there was further switching between loan categories.

Total lending for housing rose to $1.62 trillion, up $14 billion in the month. This is a new record and is up 0.88% from last month. On these figures, owner occupied loans grew 0.9% ($9.4 billion) and investment loans grew 0.84% ($4.68 billion). We see variations in the personal credit series too, with borrowing up 0.1% in the month, by $0.15 billion to $144 billion; business credit rose by 1.29% or $11.2 billion to $879.8 billion. But there is no way we can reconcile the two data series, so actually, we just have to take the RBA’s word on the figures – hardly open and transparent. Perhaps they prefer to paint the lower “adjusted figure” to support their view all is well in the housing lending sector, but it is mighty strange to have such varied outcomes.

We also see the proportion of housing lending for investment purposes remained at 34.8% of all lending, still too high in our view and the proportion of lending to business rose a little to 33.2% of all lending. We are still over leveraged into housing generally, and to investment housing in particular.

The RBA noted:

All growth rates for the financial aggregates are seasonally adjusted, and adjusted for the effects of breaks in the series as recorded in the notes to the tables listed below. Data for the levels of financial aggregates are not adjusted for series breaks. Historical levels and growth rates for the financial aggregates have been revised owing to the resubmission of data by some financial intermediaries, the re-estimation of seasonal factors and the incorporation of securitisation data. The RBA credit aggregates measure credit provided by financial institutions operating domestically. They do not capture cross-border or non-intermediated lending.

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $48 billion over the period of July 2015 to December 2016, of which $0.9 billion occurred in December 2016. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes”.

We will discuss the APRA monthly banking stats later.