The RBA Credit Aggregates for February today told us what we already knew, housing credit is still booming. The value of loans outstanding rose by 0.54% (seasonally adjusted), with investment loans growing at 0.68% and owner occupied loans at 0.46%. As a result, the ratio of investment loans to owner occupied loans continued its rise to a record 34.4% of all housing. Yes, investment lending is out of control!
Whilst business lending rose in the month by 0.64% and makes an annual growth rate of 5.6%, the ratio of housing investment loans to business lending continued to widen, it is now 62.7%. Personal credit fell slightly, down by 0.3% making a 12 month rate of 0.5%.
The volume of investment loans driven by high demand from a range of household sectors continues to crowd out productive business lending, and fuels rising household debt, higher house prices and larger bank balance sheets. Lowering interest rates further will not help the position, but given lower than planned growth, we expect further cuts. This element which is missing in action is a proper approach to macroprudential controls. New Zealand have signalled a potential path.
