The newspapers yesterday were fairly positive about home loan approval figures just released by the Australian Bureau of Statistics.

The Age newspaper: "A 4.4 per cent rise in home loans in May suggests the housing market is starting to pick up after the slowdown earlier in the year following November's rate rise." "ANZ economist David Cannington said May's figure meant there had been two months of fairly positive data after the sharp downturn early in 2011. The initial softening after the November rate hike is fading out of the market,'' he said. He added that the numbers suggested investors were coming back to the market after the drop off earlier in the year."

Herald Sun: "A RISE in the number of home loans approved in May indicates that strength is returning to the housing market, according to economists. Home loans approvals increased over April by 4.4 per cent to 49,437 as bank lending increased to the highest level in two years in an indication home buyers were gradually returning to the market."

Sounds rosy but data from the ABS suggests a bit of bottom bouncing rather than a recovery.

The recovery they are talking about is the last data point going from $19.92 Billion in April to $20.49 Billion in May.

The ABS also published today the total for all residential housing lending for May 2011. The annual growth trend probably shows a clearer picture of housing finance:

Total residential home lending in March 2002 was $326 Billion. To help fund our lifestyles home lending has grown by 334% to $1,089 Billion. Gross Domestic Product has only grown by 83% over the same period. So that is 4 times as much debt growth as economic growth. So the question is and always has been, do we need this sort of debt growth to get an acceptable economic growth.

History has shown that this is actually the case, but it now appears that consumers are reluctant to grow debt at previous growth rates.

Michael Cornips