Hey big spender

Home Update Newsletter: Issue 4 – August 2010

Author: Craig James
Publication: Chief Economist, CommSec.

Credit cards dusted off again; housing settles

Housing Finance; Credit/debit cards; Petrol price

Credit card balances are getting bigger. The average credit card balance stood at a $3,248.60 in May, up $14.60 on the previous month. The average credit card balance is up 5 per cent on a year ago – the fastest rate in two years. Either consumers are finding it tougher to make ends meet or there has been some thawing in the extent of consumer conservatism.
Home lending rose slightly in May. The number of new home loans to owner-occupiers rose for the first time in eight months in May, lifting by 1.9 per cent. Housing loans had been at the lowest levels in nine years.
Petrol prices are falling slightly. The Australian Institute of Petroleum national average petrol price fell by 0.9 cents to 127.6 cents per litre last week. Wholesale (terminal gate prices) have hit 5-week lows, and motorists can expect pump prices to fall by up to 1.0 cent a litre in the coming week.

What does it all mean?

There have been some subtle shifts in consumer land. Consumers are keeping a little more debt outstanding on their credit cards – nothing substantial, but average balances are edging higher. And at the same time Aussie consumers are starting to use their credit cards a bit more when making purchases while making slightly less use of debit cards.
The hard part is working out what it means. Consumers may be using credit cards again because they are finding it hard to make ends meet – certainly home loan repayments have been rising. But it may also signal some thawing in the conservative behaviour that consumers have been displaying over the past year or so.
On balance it looks like a combination of both. Consumers are indeed shopping around for bargains, but with the job market firmer, they appear to be willing to put their credit card to greater use alongside with their debit cards (their own money).
The Reserve Bank has received further justification for its decision to leave interest rate settings on hold in the shape of the latest home loan figures. The housing market has softened markedly in response to higher interest rates and the withdrawal of government stimulus and clearly the issue can be removed from the Reserve Bank’s “wall of worry”. Earlier in the year firm growth in home prices and strong demand for housing loans unsettled policymakers. But the ‘all clear’ has now been sounded.
Not just are home loans hovering near their lowest levels in nine years but auction clearance rates softened markedly over the weekend across capital cities. Home prices are set to grow at a more normal annual rate of 5-8 per cent in 2010, well down on growth rates in low double digits recorded earlier in the year.
Barring shock inflation figures at the end of the month, the Reserve Bank is well justified to stay on the interest rate sidelines until at least much later in the year.
Petrol prices have been reasonably stable of late and all credit goes to the Aussie dollar. That was certainly the case in the past week, as while crude oil prices lifted sharply, so did the Aussie dollar. The good news for motorists is that the terminal gate price has eased almost 2 cents from recent highs to hit a 5-week low. So motorists can bank on pump prices remaining largely stable and perhaps falling up to a cent per litre in the coming week.

What do the figures show?

Credit & debit card activity:

Figures released from the Reserve Bank show that the average credit card balance stood at a $3,248.60 in May, up $14.60 on April. The average credit card balance is up 5.0 per cent on a year earlier – the fastest annual growth in 25 months. And growth of a smoothed measure of credit card debt – the rolling 12-month average – lifted to a 12-month high of 2.3 per cent in April.

Of credit cards attracting interest charges, the average outstanding balance rose by $16.40 to $2,387.70. The average balance accruing interest is 7.2 per cent higher than a year ago – a three-year high.The number of credit card cash advances in May was up by 2.4 per cent on a year earlier – the first positive reading in 20 months. Credit card advances have been largely falling in annual terms for around four years.
The number of purchases made on credit cards rose by 6.3 per cent in May after falling by 11.5 per cent in April.The number of credit card purchases was up 10.5 per cent on a year earlier.
The number of purchases made on debit cards (excludes cash out) rose by 3.3 per cent in May after falling by 2.7 per cent in April. The number of debit card purchases was up by 12.3 per cent on a year ago.
The number of all EFTPOS (debit) transactions in May was up 11.1 per cent on a year ago, down from the 12.6 per cent annual growth recorded in April.
The proportion of ATM withdrawals made at own bank ATMs hit a record high of 62.6 per cent in May, up from 62.1 per cent in April.

Housing Finance

The number of new owner-occupier housing loans rose for the first time in eight months, lifting by 1.9 per cent in May to 48,818 new commitments. Loans had hit 9-year lows in April.
Construction loans fell by 2.2 per cent, loans for the purchase of established dwellings (ex refinancing) rose by 1.1 per cent, while loans for the purchase of newly erected dwelling rose by 4.7 per cent. Refinancing commitments rose by 4.8 per cent.
Loans rose in all states in May except Western Australia (down 3.8 per cent) and the ACT (down 2.4 per cent).
The value of new housing commitments (owner occupier and investment) rose for the third straight month, up 0.7 per cent in May. Owner-occupier loans fell by 0.3 per cent while investment loans rose by 2.6 per cent.
There is no backlog of loans to be taken up with commitments not advanced up just 1.6 per cent on a year ago.
First home buyers fell from 16.3 per cent to 16.1 per cent of all lending in May, and well below the record high of 28.5 per cent set in May 2009.
Fixed rate loans accounted for 3.7 per cent of all loans, up from 2.4 per cent.