New data from the Reserve Bank of Australia (RBA) shows that housing credit growth is continuing to slow across Australia. What does this mean for ASX investors?
Data for the month of May shows that housing credit growth has slowed to 3.7% over the year ended 31st May 2019. For comparison, growth was 5.8% in 2018 and 6.6% in 2017.
Total credit growth to the year ended 31st May 2019 was 3.6%, down from 4.8% in 2018 and 4.9% in 2017. The business credit growth rate has been the best performer and has steadily increased over the last three years, while personal credit has been declining.
There are several key points here for ASX investors. In terms of housing, it’s another worrying sign that the residential property market is not in good health despite an RBA rate cut and proposed APRA changes.
A declining property market could affect businesses like Commonwealth Bank of Australia (ASX: CBA), REA Group Limited (ASX: REA), or Mirvac Group (ASX: MGR). In other words, everything from banks and lenders to REITs and builders.
The business credit growth rate is a more positive sign and may suggest higher business confidence. Whether this will have much impact on ASX investors depends on which businesses are receiving the credit.
The declining personal credit growth could suggest lower consumer confidence or a tightening of lending standards following the Royal Commission.
Following the RBA’s rate cut, many investors expected credit growth to pick up on the back of lower rates. However, it seems that is not the case. Many are now predicting further rate cuts and a lack of credit growth may just speed up that process.
So, with low rates on savings accounts and term deposits, many investors turn to dividends.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.