Home construction, land sales at record highs
Lending finance
- New lending commitments soared by 12.9 per cent in March, the third gain in lending in four months and the strongest increase in 21 months. Commercial lending soared by over 20 per cent in March.
- Housing lending lifted over 7 per cent in March with loans to build new homes at record highs. Loans to buy blocks of land also hit record highs with renovation loans near three-year highs.
What does it all mean?
- Up to now it has been housing that has been leading the way in the lending market. But in March the business sector joined in with new lending up over 20 per cent. At present the future trends are still uncertain, but the lift in business lending in the latest month is encouraging.
- If there is any doubt about the value of the first home owners grant they are dispelled with the latest data. Vacant blocks of land are being snapped up. And more home buyers are looking to build their dream home than buy an existing dwelling. In just the past seven months, loans to build new homes have risen by 42 per cent to record highs.
- For those looking to live in, rather than invest in, new dwellings, lending demand is up across the board. It's not just loans to buy existing homes that are being taken up but more loans are being taken out for renovations. And loans to buy vacant blocks of land are at record highs.
- While investors are dragging their heels, it won't be too long before they get the message that the housing market is gaining momentum. First home buyers now have another six months to embrace the generous grants from the government. If recent enthusiasm to buy and build is any guide, the home construction sector will be at the forefront of the economic recovery.
- The sharp rise in dwelling construction is clearly good news. The rental market has been super-tight for a number of years but finally supply is catching up to the latest demand.
What do the figures show?
- Lending Finance: Total new lending commitments (housing, personal, commercial and lease finance) lifted by 12.9 per cent in March, more than reversing the 7.6 per cent drop recorded in February. It was the strongest increase in lending for 21 months. Lending stands 8.3 per cent lower than a year ago - the smallest decline in 13 months.
- Within housing finance loans to build new homes rose 15.4 per cent in March to record highs. Owner-occupier lending was up 13.7 per cent on a year earlier in seasonally adjusted terms while renovation loans were up 14.5 per cent. Investor housing finance was down 16.8 per cent on a year earlier.
- Commercial finance soared by 20.5 per cent in March after falling by 14.3 per cent in February. Housing finance rose by 7.3 per cent and lease loans were up by 1.3 per cent but personal finance fell by 2.2 per cent.
- Within commercial commitments, fixed lending rose by 28.0 over cent in March after falling by 7.9 per cent in February. And revolving credit grew by 6.6 per cent after slumping by 24.1 per cent in February.
- Within personal commitments, revolving credit fell by 4.3 per cent while fixed lending rose by 0.5 per cent.
- Within personal commitments, all fixed lending components were up in the month in original terms. While lending was up slightly on a year earlier, the later timing of Easter this year is a consideration. Still, loans to buy blocks of land were up a staggering 41.8 per cent on a year earlier.
- All commercial fixed lending categories rose in the latest month in original terms, especially "other" loans and wholesale finance.
- New credit limits to business rose by $8.7 billion in March, but this was exceeded by the $11.4 billion in cancellations or reductions. Usage of commercial revolving credit limits eased from a 12½ year high of 63.2 per cent to 62.3 per cent in March.
- Undrawn fixed loan commitments to business stood at $49.4 billion in March, down 11.0 per cent over the past year.
What is the importance of the economic data?
- Lending Finance 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 sharp lift in lending in the latest month, together with the rising trend, represents good news for banks.
- Building material suppliers, tradesmen and housing-dependent retailers will benefit from the strong upswing in home construction. Each new home will require carpet, kitchens, blinds and gardens, so a raft of industries are poised to benefit.
Source Craig James, Chief Equities Economist, CommSec
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