Housing credit dives to 34 year low: House prices down again

CORRECTION TO NUMBER FOR HOUSING CREDIT:

House prices fell 0.2% in December, after rising a revised 0.4% in November.  House prices are around 3 ½% down over the past year to lock in one of the weakest annual house price results seen in Australia.

To be sure, the house price falls are a million miles from the weakness seen in Ireland, the US, UK, Spain and many other countries, but the lack of evidence of a turning point is a little disconcerting.

There are no hints yet that house prices are forming a base, although the seasonal break in housing turnover in December and January needs to be considered when looking at monthly data.  It might be, it might not be - let's see the results for February and March for a better guide.  That considered, the broad trend though 2011 was steady and increasingly uncomfortable falls in house prices.  No wonder the banks are keen to have some relief via RBA rate cuts as they hope like crazy to avoid a more serious housing issue.

No wonder consumer sentiment is in the gutter.

In other data, total private sector grew by a weak 0.4% in December to be 3.5% above the level of a year earlier.   This locks in the deleveraging occurring with credit growth remaining well below nominal GDP growth. 

Consistent with the soggy house price data, housing credit growth slowed to just 5.4% in the year to December, the weakest result ever recorded in the 34 years of available data.  Personal credit actually fell again in December, a sure sign consumers are spending less, saving more in these uncertain times.  This caution probably accounts for the fall in employment in recent months.

The housing sector, through the credit and house price data, is starting to become a stone in the shoe for the economy.

The NAB business survey showed conditions and confidence a tick higher in December, which is good news.  The level of business sentiment and conditions are now broadly consistent with the economy growing around 3%.  Sentiment needs to remain positive to maintain the current level if economic growth of that order is registered in 2012 and beyond.

All of this information is feeding into the final drafting of the RBA Board papers and critically, what recommendation will be taken into that meeting. 

These data only reinforce the safe forecast that the RBA will cut 25 basis points and maintain an open view on future rate cuts.  The door is open, however slightly, for the RBA giving consideration to a 50 basis point cut to support growth in the latter part of 2012 and into 2013.  There are still a few days of data and events to come, to cement the case for either a 25 or 50 cut.