New analysis has revealed that housing credit growth has now sunk to historic lows.
RP Data’s senior researcher Cameron Kusher specifically investigated the housing component of the Reserve Bank of Australia’s credit data, and found that growth in outstanding housing credit was at a record low over the 2011-2012 financial year with just a small increase of 5.1 per cent.
The results also highlight the monthly and annual growth in private sector credit over the past 30 years.
“Clearly, annual growth in housing credit has been trending lower ever since it peaked at 22.0 per cent over the year to March 2004 - a period that coincides with the end of the 2001 to 2003 housing boom,” he said.
“Although the results indicate that housing credit continues to grow, on a monthly basis, private sector housing credit increased by just 0.3 per cent in June 2012 which was the lowest monthly growth rate recorded since July 1984 when housing credit declined by 0.4 per cent, and the second lowest growth rate across the history of the series.”
Now split out into housing credit for owner occupation and investment purposes, the RBA data reveals that over the past 12 months, owner occupier housing credit increased by 4.9 per cent, while investment credit recorded stronger growth at 5.3 per cent.
The 4.9 per cent increase in owner occupier credit over the year was historically low, whereas investment credit is above its historic low of 3.2 per cent and slightly higher than the recent low of 5.0 per cent. Overall, the data is indicative of low levels of demand for housing credit.
Lower levels of growth in demand for housing credit can largely be attributed to the carnage from the financial crisis which has resulted in households now saving at a much higher rate.
According to Mr Kusher, another major contributing factor to the slowdown in private sector housing credit growth has been the lower level of capital gains in the housing market and the subsequent decline in sales volumes.
“If home values fail to increase at a pace consistent with the demand for housing credit, even if sales volumes remained stable, values are simply not going to grow at the same pace. In addition, these will also be based on how quickly the cost of purchasing increases (growth in home values),” Mr Kusher said.