Home lending up by 52 per cent
Home lending surges 52 per cent in just four months - with more to come off as the Reserve Bank indicates it's ready to cut rates again to prevent any "larger-than-expected contraction" in housing construction.
The latest Commonwealth Bank of Australia Household Spending Intentions (HSI) out today found the housing market was "the one area where monetary policy stimulus is clearly working" but it's new housing that the RBA seems to be most concerned about now.
The CBA HSI found "home buying intentions rose further in October and are now close to the record highs seen in H1 2017. CBA Home Buying HSI levels are consistent with an ongoing pick up in dwelling prices."
CBA chief economist Michael Blythe said housing lending was "turning up".
"Lending over the four months to September grew at an annualised pace of 52 per cent! And that certainly looks fast enough to give some boost to housing credit outstanding," he said in a statement outlining the HSI developments.
But it's new housing that's giving the RBA board nightmares, with minutes from the November monetary policy meeting - released Tuesday morning - showing concern over "near-term downside" risks to the economy off any "larger-than expected contraction in housing construction activity".
The RBA minutes said the recent improvement in housing market conditions had not yet translated into stronger sales for new housing.
"Despite the stronger-than-expected pick-up in established housing markets, there had been little evidence of a lift in the early stages of residential development activity," it said.
"In the near term, the risks to growth from dwelling investment were tilted to the downside. Building approvals had declined in the September quarter, to be more than 20 per cent lower over the year."
"A larger-than-expected contraction in dwelling investment could delay the gradual improvement in GDP growth. Members noted that the recent strengthening in housing market conditions would support building activity in time."
The good news was that the lagged response to higher housing prices and a period of low building activity "raised the likelihood that dwelling investment would be stronger in the medium term than currently expected", the RBA board minutes said.
RBA said Sydney and Melbourne housing prices "had been on an upward trajectory since June, the number of auctions had increased and auction clearance rates had been at relatively high levels".
"Members noted that housing market conditions had continued to strengthen in Sydney and Melbourne, and conditions appeared to have firmed in other cities, including Brisbane. However, housing market conditions had remained weak in Perth and Darwin."
CBA expected to "see the residential construction downturn bottoming out around mid 2020".
It found the RBA cuts were a double edged for consumers, on the one hand boosting housing and on the other dampening consumer demand because of fears about a weaker economy.
"The fall in the real value of retail spending over the past year is certainly the worst outcome since the early nineties recession," Mr Blythe said.
He agreed that the economy was at a gentle turning point but said "that turning point looks pretty modest when benchmarked against record low mortgage rates, the wealth boost from rising house prices, solid jobs growth and tax rebates".
"The "discrepancy" reflects one of the risks we have warned about for a while now. That is, interest rate cuts are no longer delivering much in the way of a boost to disposable income."
"And, by fuelling fears about the economic outlook, rate cuts are probably blunting some of the potential boost from tax rebates and rising house prices."
Non-retail trends looked "reasonably encouraging" with travel spending intentions "turning up", entertainment spending intentions "rising again", education spending intentions "high and rising" and health and fitness level out at a solid rate of growth.
"The one exception is motor vehicles. Motor vehicle purchase intentions remain deep in negative territory. And the tentative signs of a turn in the past few months have stalled."
Originally published as Home lending up by 52 per cent