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Economics | February 11 2020

Average mortgage hits $500,000 First home buyers at 8-year high Consumer sentiment; Business survey; Lending Home loans: The value of home loans rose 4.4 per cent in December with owner-occupier loans up 5.1 per

cent and investor loans up 2.8 per cent. The average new mortgage stands at a record $497,900.

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 107.8 points. Sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.

Business survey: The NAB business confidence index rose from -2.5 points to -0.8 points in January. (The long-term average is +5.8 points). And the business conditions index fell from +2.7 points to +2.6 points in January. (The long-term average is +5.7 points).

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The business survey has broad implications for investors and the economy. The lending figures have implications for builders, housing-reliant businesses, finance providers, retailers, and companies dependent on consumer and business spending.

What does it all mean? Both consumer and business confidence are treading water, just below longer-term averages. Aussie consumers

are confident on the outlook for their own finances (the outlook for finances is at a 17-week high). It’s just that they worry about the economy. Drought, bushfires, flood, coronavirus are all weighing on consciousness. The low level of the Aussie dollar also isn’t helping the consumer mood. And businesses are similarly in ‘wait and see mode’.

While the consumer and business surveys provide no guidance for interest rates, the home loan market is motoring. More loans are being taken out by investors and those wanting to buy homes to live in. The share of first-home buyers is at eight-year highs while the number of first-home borrowers is at decade highs. Upward pressure exists on home prices, serving to keep the Reserve Bank on the interest rate sidelines.

Since the election the average new home loan has lifted by around $60,000 or 16 per cent. Rate cuts and increased buyers enthusiasm for property have driven the gains. But with wages growing at a 2.2-2.3 per cent annual pace, affordability constraints may soon temper the optimism.

What do the figures show? Consumer sentiment

The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 107.8. Sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.

Three of the five major components of the index fell last week:

The estimate of family finances compared with a year

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Economic Insights. Average mortgage hits $500,000

ago was down from +9.8 points to +6.5 points;

The estimate of family finances over the next year was up from +23.1 points to +27.8 points;

Economic conditions over the next 12 months was down from -14.4 points to -17.9 points;

Economic conditions over the next 5 years was up from -3.8 points to +1.3 points;

The measure of whether it was a good time to buy a major household item was down from +27.8 points to +21.4 points.

The measure of inflation expectations was down from 4.2 per cent to 3.9 per cent.

National Australia Bank Business Survey - January 

The NAB business confidence index rose from -2.5 points to -0.8 points in January. (The long-term average is +5.8 points). And the business conditions index fell from +2.7 points to +2.6 points in January. (The long-term average is +5.7 points). The survey was conducted in the period January 21-February 3, 2020 across 400 firms.

The rolling annual average business confidence index fell from +1.6 points to 1.2 points. The rolling annual average business conditions index eased from +3.9 points to +3.6 points.

Key Components: The index of trading conditions fell from +5.8 points to 4.6 points; employment fell from +4.3 points to +0.8 points; profitability rose from +1.0 point to +1.8 points; forward orders rose from -1.4 points to -0.6 points; stocks rose from -0.6 points to +0.2 points; exports were steady at -0.6 points.

Inflationary indicators show modest price and wage pressures: The monthly reading of labour costs rose at a 0.9 per cent quarterly rate in January after a similar rise in December. Purchase costs rose at a 0.7 per cent quarterly rate (previously +0.5 per cent). Final product prices rose at a 0.5 per cent quarterly rate (previously +0.3 per cent). Retail prices rose at a 0.3 per cent quarterly rate (previously +0.5 per cent).

Capacity utilisation rose from 80.9 per cent to 81.3 per cent, above the long-term average of 81.1 per cent.

The proportion of firms reporting that they did not require credit rose from 40 per cent to 50 per cent.

NAB reported: “The picture painted by the first survey of 2020 is broadly similar to that at the end of 2019. While there has been no significant deterioration in overall terms – despite some state and industry evidence of a bushfire impact – the survey continues to suggest very little / to no growth in the private sector.”.

“Transport & utilities saw a sharp increase in the month with construction and finance, business and property also up. The other industries were weaker, particularly wholesale and manufacturing. In trend terms, the services sector continues to have strong conditions, while goods distribution including retail and wholesale remain weakest. “

“Conditions were weaker in Vic, NSW and WA in the month, while SA, Tas and Qld all saw improvements. Overall, in trend terms, conditions remain most favourable in Tas followed by Vic and SA. The other states are below the national average with WA weakest at -2 index points. “

Lending The value of total new home loan commitments to households rose by 4.4 per cent in December to be up 14

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Economic Insights. Average mortgage hits $500,000

per cent on a year ago. The value of new owner occupier home loan commitments rose by 5.1 per cent to be up 17.9 per cent over the year. And the value of new investor home loan commitments lifted by 2.8 per cent to be up by 4.9 per cent over the year.

The number of owner occupier construction loans rose by 5.1 per cent (value up 5.6 per cent); loans for purchase of newly-erected dwellings rose 5.6 per cent (value up 5.0 per cent); loans for purchase of existing dwellings rose by 2.9 per cent (value up 5.4 per cent).

On first home buyer activity, the Bureau of Statistics reported that “the number of owner occupier first home buyer loan commitments rose 6.2 per cent in seasonally adjusted terms; the number of first home buyer loan commitments for investment purposes accounted for 5.4 per cent of all first home buyer commitments, in original terms; owner occupier

first home buyer loan commitments accounted for 30.2 per cent of all owner occupier commitments (excluding refinancing), in original terms.”

In terms of owner-occupier home loans by state in December: NSW (up by 3.9 per cent); Victoria (up by 7.5 per cent); Queensland (up by 5.9 per cent); South Australia (up by 2.4 per cent); Western Australia (up by 3.8 per cent); Tasmania (down by 1.0 per cent); Northern Territory (up 8.8 per cent); ACT (up 10 per cent).

Personal finance fixed term loan commitments rose by 3.5 per cent in December to be up 7.9 per cent on a year ago.

Personal lending from revolving sources (including credit cards) fell by 8.5 per cent in December after rising by 4.3 per cent in November. Loans were down by 6.2 per cent over the year.

New finance leases fell by 5.3 per cent in December but were still up 5.6 per cent on the year.

The value of new loan commitments to businesses for construction rose by 4.4 per cent in loans to be up 50.2 per cent on a year ago. Loans the purchase of property rose by 39.7 cent to be up 33.9 per cent over the year.

What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

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Economic Insights. Average mortgage hits $500,000

“Lending Indicators” is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.

What are the implications for interest rates and investors? The Reserve Bank Governor says that confidence hasn’t been dented by low interest rates. Philip Lowe believes

the culprit is lower home prices and ‘balance sheet adjustment’. But home prices have risen for the past six months. And wages are still outpacing prices. While shares are just off record highs.

The lift in home loans is good news for housing and homewares-dependent retailers.

The lift in the average mortgage can reflect a range of factors such as higher home prices, activity at both the upper and lower end of the market and household incomes and savings. The lift in mortgage size will deter the Reserve Bank from cutting rates again.

Craig James, Chief Economist, CommSec Twitter: @CommSec