Craig James, Chief Economist Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction. Economics | March 11, 2020 Average mortgage lifts at fastest pace in 16yrs Aussie consumers experience FOTU Consumer sentiment; Lending; Health package; RBA speech Health package: The Federal Government has unveiled a $2.4 billion health package to assist Australians in the wake of the COVID-19 coronavirus outbreak. Home loans: The value of home loans rose by 4.6 per cent in January with owner-occupier loans up 5.0 per cent and investor loans up 3.6 per cent. Average mortgage: The average new mortgage stands at a record $504,000, lifting 21.7 per cent on the year – the fastest annual pace in 16 years of data. Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index fell by 3.8 per cent in March to 91.9 after rising by 2.3 per cent in February. A reading below 100 points denotes pessimism. Wisest places for savings: Consumers believe that the wisest place for extra savings is in the Bank (28.3 per cent of respondents). But there was a lift in consumers nominating shares and real estate. Reserve Bank Deputy Governor speech. Topic was “The Virus and the Australian Economy.” https://www.rba.gov.au/speeches/2020/sp-dg-2020-03-11.html The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. 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? The Government has announced some of the spending measures to support the economy during the COVID-19 health emergency – notably the measures to support the health system. Overall $2.4 billion is to be spent, with $1.2 billion to be spent this financial year. You don’t need to conduct a survey to know that Aussie consumers aren’t entirely confident at present. A better test will be to see how people feel once the economic stimulus package is released. As per the ANZ/Roy Morgan weekly survey, the monthly Westpac Melbourne Institute survey shows that consumers are still happy with the state of their finances. Rather they are worried about the outlook for the economy – FOTU – fear of the unknown. No surprises in the speech by the Reserve Bank Deputy Governor (apart from changing the topic from investment to the coronavirus). Guy Debelle continued to defend the decisions to cut rates to all-time lows. He noted that lower interest rates served to push down the Aussie dollar and thus support exports. Further, Debelle noted “Lower interest rates will provide more disposable income to the household sector and
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Craig James, Chief Economist Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction.
Economics | March 11, 2020
Average mortgage lifts at fastest pace in 16yrs Aussie consumers experience FOTU Consumer sentiment; Lending; Health package; RBA speech Health package: The Federal Government has unveiled a $2.4 billion health package to assist Australians
in the wake of the COVID-19 coronavirus outbreak.
Home loans: The value of home loans rose by 4.6 per cent in January with owner-occupier loans up 5.0 per cent and investor loans up 3.6 per cent.
Average mortgage: The average new mortgage stands at a record $504,000, lifting 21.7 per cent on the year – the fastest annual pace in 16 years of data.
Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index fell by 3.8 per cent in March to 91.9 after rising by 2.3 per cent in February. A reading below 100 points denotes pessimism.
Wisest places for savings: Consumers believe that the wisest place for extra savings is in the Bank (28.3 per cent of respondents). But there was a lift in consumers nominating shares and real estate.
Reserve Bank Deputy Governor speech. Topic was “The Virus and the Australian Economy.” https://www.rba.gov.au/speeches/2020/sp-dg-2020-03-11.html
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. 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? The Government has announced some of the spending measures to support the economy during the COVID-19
health emergency – notably the measures to support the health system. Overall $2.4 billion is to be spent, with $1.2 billion to be spent this financial year.
You don’t need to conduct a survey to know that Aussie consumers aren’t entirely confident at present. A better test will be to see how people feel once the economic stimulus package is released. As per the ANZ/Roy Morgan weekly survey, the monthly Westpac Melbourne Institute survey shows that consumers are still happy with the state of their finances. Rather they are worried about the outlook for the economy – FOTU – fear of the unknown.
No surprises in the speech by the Reserve Bank Deputy Governor (apart from changing the topic from investment to the coronavirus). Guy Debelle continued to defend the decisions to cut rates to all-time lows. He noted that lower interest rates served to push down the Aussie dollar and thus support exports.
Further, Debelle noted “Lower interest rates will provide more disposable income to the household sector and
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Economic Insights. Average mortgage lifts at fastest pace in 16yrs
those businesses with debt. They may not spend it straight away, but it brings forward the day when they will be comfortable with their balance sheets and resume a normal pattern of spending.”
Since the election the average new home loan has lifted by around $75,000 or 17.5 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.
The average loan to buy an established dwelling is up 21.7 per cent in the year to January – the fastest pace in the 16 years of available data. Lower interest rates and firmer home prices are allowing people to take on more debt. Interest rates are working – at least in the housing market.
What do the figures show? Health Package The package totals $2.4 billion. Some of the details of the spending measures:
$100 million will fund a new Medicare service for people in home isolation or quarantine, as a result coronavirus, to receive health consultations via the phone or video such as FaceTime or Skype.
telehealth service will help contain the spread of the virus and it will be bulk-billed at no cost to patients and will be available from Friday 13 March.
$25 million to fund home medicines services which will enable patients to have their PBS prescriptions filled online or remotely, and have the medicines delivered to their home.
invest $206.7 million for up to 100 dedicated respiratory clinics.
establish dedicated Medicare funded and bulk billed pathology test for COVID-19.
$101.2 million to educate and train aged care workers in infection control, and enable aged care providers to hire extra nurses and aged care workers for both residential and home care.
The Government has already announced $500 million in funding for the states and territories for COVID-19.
The Government will allocate $30 million from the Medical Research Future Fund for vaccine, anti-viral and respiratory medicine research.
$30 million to deliver a new national communications campaign.
invest $30 million in infection control training and programs for health and aged care workers.
$1.1 billion to ensure patients and critical health care staff have face masks, and other protective equipment such as surgical gowns, goggles and hand sanitiser for health professionals.
Lending – January 2020 The value of total new home loan commitments to households rose by 4.6 per cent in January to be up by
23.3 per cent on a year ago. The value of new owner occupier home loan commitments rose by 5.0 per cent to be up 26.9 per cent over the year. And the value of new investor home loan commitments lifted by 3.6 per cent to be up by 14.7 per cent over the year.
The number of owner occupier construction loans rose by 4.2 per cent (value up 5.0 per cent); loans for purchase of newly-erected dwellings rose by 13.4 per cent (value up 14.0 per cent); loans for purchase of existing dwellings rose by 1.1 per cent (value up 3.0 per cent).
On first home buyer activity, the Bureau of Statistics reported that “the number of owner occupier first home buyer loan commitments rose 3.2 per cent in seasonally adjusted terms; the number of first home buyer loan commitments for investment purposes accounted for 4.7 per cent of all first home buyer commitments, in original terms; owner occupier first home buyer loan commitments accounted for 30.9 per cent of all owner occupier commitments (excluding refinancing), in original terms.”
In terms of owner-occupier home loans by state in
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Economic Insights. Average mortgage lifts at fastest pace in 16yrs
January (value, excluding refinancing): NSW (up by 8.3 per cent); Victoria (up by 6.8 per cent); Queensland (down by 2.5 per cent); South Australia (up by 2.5 per cent); Western Australia (up by 1.3 per cent); Tasmania (up by 4.1 per cent); Northern Territory (up 2.4 per cent); ACT (up 2.9 per cent).
Personal finance fixed term loan commitments rose by 2.0 per cent in January to be up 10.4 per cent on a year ago.
Personal lending from revolving sources (including credit cards) rose by 3.0 per cent in January after falling 9.1 per cent in December. Loans were down by 5.9 per cent over the year.
New finance leases rose by 4.4 per cent in January after falling by 5.4 per cent in December. Loans were still up 13.8 per cent on the year.
The value of new loan commitments to businesses for construction fell by 29.3 per cent in January with loans down by 17.9 per cent on a year ago. Loans for the purchase of property by business fell by 17.6 cent to be down by 13.7 per cent over the year.
Consumer confidence – March 2020
The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 3.8 per cent to 91.9 in March from 95.5 in February. A reading below 100 points denotes pessimism.
The current conditions index fell by 1.8 per cent. And the expectations index fell by 5.3 per cent.
Four of the five components of the index fell in March:
The estimate of family finances compared with a year ago rose by 1.8 per cent to 82.7 points;
The estimate of family finances over the next year fell by 1.7 per cent to 97.3 points;
Economic conditions over the next 12 months fell by 12.8 per cent to 77.9 points (4½-year low)
Economic conditions over the next 5 years fell by 1.3 per cent to 90.4 points;
The measure on whether it was a good time to buy a major household item fell by 4.3 per cent to 111.4 points.
Housing outlook: A good time to buy a dwelling? The index fell by 0.3 per cent to 111.8 points to be down by 4.1 per cent on the year. House price expectations fell by 6.6 per cent to 141.7 points to be up by 65.9 per cent on a year ago.
Unemployment expectations rose by 8.5 per cent to a 4-year high of 146.1 points (implying that people expect a weaker job market).
Wisest place for savings: Overall 28.3 per cent of respondents believe the wisest place to put new savings is in the bank (December quarter 28.5 per cent). But 9.9 per cent of consumers nominated shares – equalling the best outcome in almost six years. Further, 13.1 per cent believe the wisest place for savings is real estate, up from 10.1 per cent in the December quarter and near 3-year highs.
The proportion of people that ‘don’t know’ where is the wisest place to put new savings fell from 6.8 per cent to 5.7 per cent.
What is the importance of the economic data?
“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.
Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to
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Economic Insights. Average mortgage lifts at fastest pace in 16yrs
Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
What are the implications for interest rates and investors? The Reserve Bank Deputy Governor maintains an optimistic stance “The effect of the virus will come to an end at
some point. Once we get beyond the effect of the virus, the Australian economy will be supported by the low level of interest rates, the lower exchange rate, a pick-up in mining investment, sustained spending on infrastructure and an expected recovery in residential construction.
The Government has announced its intention to support jobs, incomes, small business and investment which will provide welcome support to the economy. The combined effect of fiscal and monetary policy will help us navigate a difficult period for the Australian economy. They will also help ensure the Australian economy is well placed to bounce back quickly once the virus is contained.”
Aussie home buyers are taking on more debt – in part because they can – and in part because they need to, to buy their dream homes. Lower interest rates are allowing people to trade up, as well as to take on more debt without breaking the bank. But stronger home buying markets are causing prices of established dwellings to rise, necessitating buyers to take on more debt.
The strength in home lending rules against the need for the Reserve Bank to cut rates again.
