Green Shoots Of Business Investment – Maybe!

The latest data from the ABS: Lending Finance to end July 2017, is the final piece on the monthly data releases which is the story of finance. Most striking is the rise in commercial lending, other than for investment home investment, up 2%, while lending for property investment fell as a proportion of all lending, and of lending for residential housing. This included significant falls in NSW where it appears investors may be changing their tune.

So, finally some green shoots of business investment perhaps. We really need this to come on strong to drive the growth we need to stimulate wages. The upswing is there, but quite small, so we need to watch the trajectory over the next few months.  Overall lending grew 0.64% in the month, (which would be 7.8% on an annualised basis), way stronger than wages or cpi.

The total value of owner occupied housing lending excluding alterations and additions rose 0.7% in trend terms. The trend series for the value of total personal finance commitments fell 0.5% within which fixed lending commitments fell 0.6% and revolving credit commitments fell 0.4%.

The trend series for the value of total commercial finance lending rose 0.8% of which fixed lending commitments rose 1.0% and revolving credit commitments rose 0.1%, while the value of total lease finance commitments fell 4.1% in July 2017.

The ABS made a series of revisions in prior months – without explanation: Commercial Finance for the month of June 2017, Personal Finance for the periods between April 2017 to June 2017 and Investment housing finance for the month of June 2017.

 

Business Lending Stirs

The ABS data on lending finance released today for Jun 2017, provides the last piece of the lending jigsaw puzzle. Here is the overall picture, in one chart.

The key take outs are that proportion of lending for housing is falling, whilst the proportion for business lending is rising. The share of lending for investment property fell slightly.

The total value of owner occupied housing commitments excluding alterations and additions rose 0.5% in trend terms.

The trend series for the value of total personal finance commitments fell 1.8%. Fixed lending commitments fell 2.6% and revolving credit commitments fell 0.5%.

The trend series for the value of total commercial finance commitments rose 1.8%. Fixed lending commitments rose 1.8% and revolving credit commitments rose 1.8%. This includes lending for investment housing purposes. We separate that out in the chart.

The month on month movements, depicted below, show a rise in business lending unrelated to housing by 3%, whist lending for investment housing fell 0.85% month on month. So, perhaps, finally, we see lending by business beginning to gain momentum! This is needed for sustainable growth. The yellow triangles show the % change (reading the scale on the right), whilst the value is shown by the blue bars (reading the sale on the left).

The bulk of lending for investment housing still came from NSW, then VIC, where the markets are still hot.

There were a number of revisions to earlier months data, which the ABS said was a result of improved reporting of survey and administrative data. These revisions have affected the following series:

  • Commercial Finance for the periods between March 2017 to May 2017.
  • Personal Finance for the periods between March 2017 to May 2017.
  • Investment housing finance for the month of April 2017

Finance Momentum Sags

The ABS published the final piece of their May 2017 finance data, showing the flows to May 2017.  It really is a rather sad tale. Owner Occupied housing apart, all other lending flows were lower, whether you look at the trend or seasonally adjusted figures.

Looking at the moving parts, Secured housing flows rose 0.4% or $80 million, whilst secured housing alterations rose 1.9% or $5m.

Personal credit continues to fall, the flows fell 3.2% of $193 million, with similar rates of decline across both fixed and revolving loans.

Total commercial lending fell 0.8% of $314 million. Within that lending for investment housing fell 1.5% or $194 million, whilst other fixed commercial lending fell 0.5% or $96 million. Revolving commercial credit fell 0.3% or $24 million.  If business confidence is really so strong, why no growth in borrowing – something does not add up!

As a result, the total proportion of business lending to total lending stood at 29.9% down from a peak of 30.9% in December 2016. The proportion of investment property lending flows slipped to 18.1% of all lending, and 37.4% of all housing lending.

So whilst the regulatory tightening is crimping demand for investor finance, it is not being replaced with a rise in productive business lending, so commercial finance has fallen. This will put downward pressure on growth, at a time when mortgage interest rates are rising. We cannot see how the future growth expectations from the RBA are going to be met on these figures.

It is clear however, that secured lending for owner occupation which is up a little, will not fill the void. Interestingly the state by state figures show that investor lending remains strongest in the two overheated markets of Sydney and Melbourne. Much of the fall in investment sector lending resides in the other states, who are already experience economic pressure.

The total value of owner occupied housing commitments excluding alterations and additions rose 0.4% in trend terms, and the seasonally adjusted series rose 2.9%.

The trend series for the value of total personal finance commitments fell 3.2%. Fixed lending commitments fell 3.2% and revolving credit commitments fell 3.1%.

The seasonally adjusted series for the value of total personal finance commitments fell 0.5%. Revolving credit commitments fell 3.1%, while fixed lending commitments rose 1.2%.

The trend series for the value of total commercial finance commitments fell 0.8%. Fixed lending commitments fell 0.9% and revolving credit commitments fell 0.3%.

The seasonally adjusted series for the value of total commercial finance commitments fell 6.4%. Revolving credit commitments fell 12.5% and fixed lending commitments fell 4.9%.

The trend series for the value of total lease finance commitments fell 3.3% in May 2017 while the seasonally adjusted series rose 1.1%, following a rise of 4.3% in April 2017.

Lending Finance In March Still About Housing

The ABS released their lending finance statistics for March 2017.  We see the problem again of not enough productive commercial lending, as banks chase property lenders. Revolving commercial credit did rise.

Overall trend finance flow in trend terms rose 1.3% to $70 billion, up $691 million. Within that, the total value of owner occupied housing commitments excluding alterations and additions rose 0.1% in trend terms, to $20.1 billion, up $26 million; and the seasonally adjusted series rose 0.9%.

The trend series for the value of total commercial finance commitments fell 0.3% to $42.3 billion, down $142 million. Fixed lending commitments fell 1.4% down $461 million to $33.5 billion, while revolving credit commitments rose 3.8%, up $319 million to $8.8 billion.

The seasonally adjusted series for the value of total commercial finance commitments rose 13.0%. Revolving credit commitments rose 36.8% and fixed lending commitments rose 7.1%.

Within the fixed commercial lending category, lending for investment housing fell 0.3%, down $44 million to $13.2 billion, whilst lending for other commercial purposes fell 2%, down $416 million to $20.3 billion. 39% of fixed commercial lending was for investment housing and this continues to climb.  Most of the investment in housing was in Sydney and Melbourne.

Once again the rise unproductive investment housing lending does not support true growth, and continues to create more pressure on home prices.

The trend series for the value of total personal finance commitments fell 1.3%. Fixed lending commitments fell 1.7% and revolving credit commitments fell 0.7%.

The seasonally adjusted series for the value of total personal finance commitments fell 1.7%. Fixed lending commitments fell 3.2%, while revolving credit commitments rose 0.8%.

The trend series for the value of total lease finance commitments rose 1.3% in March 2017 and the seasonally adjusted series fell 13.0%, following a fall of 32.1% in February 2017.

Higher Investment Property Lending Flows In February Offset Wider Falls

The ABS finalised their finance data today with the overall flows for February 2017. It is not pretty. Overall lending flows, in trend terms, which irons out some of the statistical bumps, shows an overall fall of 1% to $62.2 billion in the month.

Looking in more detail, lending for investment property rose 0.7% to $13 billion, whilst other fixed lending to business fell 2.9% to $20 billion.  So overall productive business lending fell again. Not good for productive growth. Actually the bulk of investor lending was in Sydney and Melbourne, highlighting again the lopsided property market, and why investor lending needs real attention from regulators and Government.

As a result of this, the proportion of fixed business lending for investment housing rose again, to 39.7%, and the share of lending for housing investment rose to 19.4%, the highest it has been since 2015

The total value of owner occupied housing commitments excluding alterations and additions rose 0.2% in trend terms, and the seasonally adjusted series fell 0.5%.

The trend series for the value of total personal finance commitments fell 0.3%. Fixed lending commitments fell 0.6%, while revolving credit commitments rose 0.2%.

The seasonally adjusted series for the value of total personal finance commitments fell 3.8%. Fixed lending commitments fell 4.7% and revolving credit commitments fell 2.2%.

The trend series for the value of total commercial finance commitments fell 1.8%. Revolving credit commitments fell 3.2% and fixed lending commitments fell 1.5%.

The seasonally adjusted series for the value of total commercial finance commitments rose 1.8%. Revolving credit commitments rose 25.5%, while fixed lending commitments fell 2.8%.

The trend series for the value of total lease finance commitments rose 6.4% in February 2017 and the seasonally adjusted series fell 31.5%, after a rise of 73.6% in January 2017.

Finally, here are the movements within the housing sector, with falls in new construction and refinance, offsetting rises in investor lending and purchase of existing dwellings.

Investors Rule (For Now)

The latest data from the ABS for Lending Finance in January just reinforces the story that investor loans were so, so strong.  Owner occupation housing finance grew 0.5%, to $20.1 billion, personal finance was up 0.4% to % 6.9 billion and overall commercial lending fell 0.9%, down to $43 billion (thanks to significant falls in non-investment housing)

However, the share of lending for investment properties, of fixed commercial lending rose to 38.4%, the highest proportion since May 2015, and the share of commercial lending for investment property now stands at 19.1% of all lending, again the highest since May 2015.

The individual monthly movements reinforce how strong investment lending was.  There was also a 5.1% fall in revolving commercial lending.

Another view, which looks just at housing confirms the story, with construction lending for investment up 5%, and investment lending for investment up well over 1%.

The state level data also confirms that the bulk of the investment property lending is in Sydney and down the east coast to Melbourne.

We say again, this is not good news, because such strong growth in finance for investment properties simply inflates banks balance sheets and home prices, raises household debt, and escalates systemic risks. We need to funnel investment into productive business enterprise, not more housing.

Expect regulatory intervention soon.  Better (very) late than never.

Lending Still Running Ahead Of Inflation

The latest release from the ABS provides lending flow data to December 2016. It reconfirms the growth in investment property loans at 36% of commercial lending (especially in Sydney which is at a 5 month peak), but also reveals more momentum in lending for other commercial proposes, (potentially a good thing if for productive business purposes) and a Christmas led growth in personal debt. Total trend borrowing grew 1.52%  or $1.9 billion in the month (which would be a 12 month rate of 18.3%), way ahead of the current inflation rate of an annual (yes annual) rate of 1.5%! Total debt flows rose to $73 billion in the month. Australia is borrowing its way to obviation.

Looking in more detail at the trend data (which smooths out the monthly noise), owner occupied loans rose just 0.2% to $20 billion, lending for property alterations fell 0.6%, and personal finance rose 0.69% to $6.9 billion (fixed loans were up 0.52% to $4.4 billion and revolving loans/credit cards rose 0.97% to $2.5 billion.

Investment housing loans rose 1.68% to 13.2 billion, (equivalent to an annual rate of 20.2%) other commercial fixed lending rose 2.86% to $23 billion and revolving commercial loans rose 1.62% to $8.7 billion.

Recent regulator moves are likely to slows investment housing lending in the next few months, but households are burdened with massive debts, which will start to bite should interest rates rise.

Meantime bank shareholders will be “laughing all the way TO the bank” thanks to higher loan volumes and improved margins following recent out of cycle rate rises.

Credit Grew In November 2016 Thanks to Commercial Flows

The latest trend finance data from the ABS shows that total lending flows were up in November 2016. Overall $72 billion of credit was written, up 2.3% from the previous month, thanks to momentum in the commercial sector.

Within that, secured lending for residential construction and purchase was $19.8 billion, down slightly from October, whilst finance for alterations and additions rose 0.13%. Personal finance grew just a little, at 0.07%.

Looking at total fixed business lending, this grew $1.4 billion, up 3.74% to $45 billion, comprising  a rise of $1.2 billion, or 5.26% to $23.2 billion for commercial lending other than housing investment, and $0.2bn for investment housing, up 1.6%, to $12.9 billion.

Revolving business credit flows grew 2.95% to $8.9 billion, and leasing rose 0.19% to 0.5 billion.

So we see a rise in investment housing lending to 39.5% of all housing lending flows, driven by strong growth in NSW mainly, and a slowing in owner occupied lending. We also see an overall rise in business lending, even after isolating investment lending. We need to see ongoing growth in non-housing related business investment if economic momentum is to be sustained.

Home Lending On The Rise

The latest housing finance data from the ABS underscores the renewed momentum in home mortgage lending, especially in the investment sector, and there was also a rise in first time buyers accessing the market.

  • The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.6%. Investment housing commitments rose 1.7%, while owner occupied housing commitments was flat.  In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 2.2%.
  • In trend terms, the number of commitments for owner occupied housing finance fell 0.1% in November 2016 whilst the number of commitments for the purchase of new dwellings rose 0.7%, the number of commitments for the construction of dwellings rose 0.2%, and the number of commitments for the purchase of established dwellings fell 0.2%.
  • In original terms, the number of first home buyer commitments rose by 13.4% to 8,281 in November from 7,302 in October; the number of non-first home buyer commitments also rose. The number of first home buyers as a percentage of total owner occupier commitments rose from 13.7% to 13.8%.

Total commitments in trend terms was $32.7 billion, of which $19.8 billion was owner occupied loans, and $12.9 billion for investment purposes. 39.5% of new lending was for investment purposes, and we see the proportion of investment loans continuing to rise, it is already too high.

Looking at the month on month movements, the seasonally adjusted changes highlight the rise in the investment funding for new construction, with a 40% rise on last month. Owner occupied refinancing fell.

The more reliable trend analysis shows the monthly movements, with a strong surge in investment loans by individuals, and a stronger fall in owner occupied refinancing.

Looking at total loan stock (in  original terms) around 35% of all loans outstanding are for investment purposes, and the slide we saw late 2015 appears to be easing.

Turning to the first time buyer, original data, the number of first time owner occupied buyers rose compared with last month, and the overall mix also increased.

Combining the first time buyer property investor data from our surveys, we see a spike in overall first time buyer activity.

Last month, around 1,100 more first time buyers entered the owner occupied market than the prior month (12%), and around 150 more in the investment sector.  We also saw a rise in the fixed rate loans, as borrowers try to lock in lower rates ahead of expected rises.

So overall, still strong momentum in the housing sector, and powered largely by an overheated investment sector.

 

Is Business Lending Momentum On The Turn?

The latest data from the ABS, Lending Finance for October 2016, shows total credit flows in October were $68.1 billion, up 0.72% compared with last month, in the more reliable trend terms. Within that, the total value of owner occupied housing commitments excluding alterations and additions fell 0.5% in trend terms, to $19.7 billion. Alterations and additions, fell 0.5%.

The trend series for the value of total personal finance commitments fell 1.2%. Revolving credit commitments fell 3.5%, while fixed lending commitments rose 0.1%. Total personal finance flows fell to $6.6 billion.

The trend series for the value of total commercial finance commitments rose 1.7% to $40.9 billion. Fixed lending commitments rose 2.0% to $32.8 billion and revolving credit commitments rose 0.4% to $8.1 billion

The trend series for the value of total lease finance commitments rose 0.1% in October 2016 and the seasonally adjusted series fell 11.8%, after a rise of 10.1% in September 2016.

What is possibly significant is that within the fixed business lending category, we have a combination of lending for investment property and lending for other business purposes. We are beginning to see a rise in other business lending, alongside lending for investment property. We need to see more of the former, and less of the latter.

Lending for investment property rose 1.5% to $12.5 billion, whilst lending for other business purposes rose 2.3% to $20.3 billion. As a result, the share of lending for business (other than for investment property) rose, whilst the share of commercial lending for investment property fell from 38.2% to 38%.

Looking at the investment property data, investors were hot to trot in Sydney, and Melbourne. Much of the investment property remains in these two centres.