Weakest demand for credit since 2005: ABS

The latest Australian National Accounts: Finance and Wealth data released by the Australian Bureau of Statistics (ABS) has revealed the total demand for credit was $38.1 billion in the June quarter 2023, marking the weakest recording since June quarter 2005.

Compared to the March 2023 quarter, total demand for credit fell 57.3 per cent, from $89.4 billion. During this quarter, demand for credit had increased by $27.7 billion from the December 2022 quarter.

The total demand for credit was driven by households, accounting for $37.7 billion.

According to the ABS, the housing market recovery drove housing credit growth during the June 2023 quarter, in line with the increased value of housing loan commitments.

The data further revealed that credit market outstanding increased by “a modest” $1.8 billion, comprised of demand for credit and partly offset by revaluation losses of $36.4 billion.

Meanwhile, the data also revealed that household wealth rose for the third consecutive quarter, up by 2.6 per cent ($379 billion). In total, household wealth was $15.1 trillion in the June quarter, 3.9 per cent ($568 billion) higher than the same period in 2022.

The increase in household wealth was primarily driven by residential land and dwellings, which contributed to 2.1 percentage points to the overall quarterly growth.

ABS head of finance statistics Dr Mish Tan said the increase in household wealth coincided with the lift in house prices this year.

“Population growth has supported demand for housing while the supply of new and established dwellings to the market remained constrained,” Dr Tan added.

Indeed, data from CoreLogic’s latest Home Value Index (HVI) revealed the upward trajectory of national home values, recording an increase of 0.8 per cent in August. This was the sixth consecutive month that home values rose.

Similarly, PropTrack’s Home Price Index recorded an increase of 0.28 per cent in national home prices in August.

CoreLogic’s HVI so far has risen 4.9 per cent since bottoming out in February, while PropTrack’s index recorded national prices sitting 2.64 per cent higher than the same period in 2022 and up 3.51 per cent in 2023.

Although household balance sheets improved, there were still signs of stress within household budgets in the June quarter, according to the ABS.

Household deposits shrank by $6 billion, marking the first quarterly decline since the June quarter 2007.

“This was the first fall in deposit balances since the global financial crisis and indicates that the household sector was tapping into cash reserves amid rising cost pressures,” Dr Tan said.

“This was consistent with a falling household saving ratio which is at its lowest level since June quarter 2008. Higher interest rates and income tax payable, paired with high consumer inflation, has reduced households’ savings buffers.”

AMP Bank deputy chief economist Diana Mousina recently flagged in the Econosights August 2023 report the consumer spending was to “slow significantly” as excess savings dwindle and mortgage repayments climb to record highs.

Although accumulated savings remain high on average and suggest that consumers “could have another two to three years” before savings run dry.

“We expect the accumulated extra savings to be mostly exhausted by late 2024,” Ms Mousina said.

She added that accumulated excess savings may never return to pre-COVID-19 levels if households have “locked them away” in deposits or investments.

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