The state of play in the lending and property markets

Written on the 18 October 2021 by Bower & Co

The news headlines in March were dire. Forecasted peak unemployment was going to hit 20%, we were facing the impending doom of a ‘September cliff’ and major Banks were forecasting property prices to fall by 30%. These frightening headlines were coupled with images of Centrelink queues out the door and around the corner. Property Bears were everywhere.

Fast-forward six months and the reality is vastly different. My beloved Melbourne is still in very real pain, both economically and emotionally, but the national property market, and general economic recovery, appear to be underway and each of the abovementioned predictions has not come to fruition. In fact, Westpac recently announced they believe national house prices are set to bottom out by June 2021, after a 2.3% fall, before bouncing 15% by mid-2023. That’s a 45% swing in property price growth projections by major Banks in six months.

For the most part, given the circumstances, I think the economy has been handled very well by our Federal Government, the Reserve Bank of Australia (RBA), the Australian Prudential Regulatory Authority (APRA), and the major Banks. All parties came to the table quickly in March and I have never seen anything like the coordinated response from all stakeholders in my 23 years in the financial services industry. They effectively conducted emergency CPR on the economy, and so far, it appears to be working.

There is still a lot of stimulus in the market so the true economic impact of locking down each state and closing borders is unknown. It’s especially unknown in Victoria, which is such an important contributor to the national GDP, and which has been locked down for so long. But if one thing is clear, it’s that the Government and Banks are not going to tip us out in the middle of the ocean. They have both extended their recovery programs beyond the initial end dates and the Government has continued to roll out more assistance in a wide range of industries.

I am in no way trying to downplay where a lot of Australians find themselves right now, or where they may end up when the stimulus ends. Segments of our community will continue to hurt for years to come. This is likely to have a generational impact on family wealth for these people. It’s nothing short of tragic.

Even with this pain still being felt there are positive signs emerging in the property market right now. Yes, there might still be some significant headwinds in front of us. International and local border closures resulting in reduced net migration, ‘real’ unemployment, the prospect of second and third waves which could be accompanied by further lockdowns, to name a few.

The traditionally dominant Melbourne and Sydney property markets have had wind in their sails for the best part of 30 years and throughout this pandemic, they have proven to be incredibly resilient with quality properties still selling above reserve prices and plenty have been sold off-market. Auction numbers and clearance rates in both cities are also gathering momentum on the back of easing Government restrictions. Preliminary results from CoreLogic for the week ending October 25th show that Sydney held 712 auctions and sold over 80% under the hammer and Melbourne held 505 auctions and recorded a clearance rate of 72.6%. The Melbourne numbers are impressive given there were 188 auctions held for the week ending October 18th and only 60 auctions in the week ending October 11th. Importantly, all capital cities, aside from Sydney and Melbourne, recorded price growth in September, and Sydney and Melbourne slowed their rate of decline during that month. October figures will be interesting to see.

The latest Australian Bureau of Statistics (ABS) Lending Indicators report shows the total value of home loan commitments rose by 12.6% in August to $21.3 billion, which is the highest monthly increase in the 18 years of data available. 

The Brisbane, Perth and Adelaide property markets have all performed strongly as their markets have reopened over the past few months. A recent release from the Real Estate Institute of Western Australia said that homes are selling 57 days faster in September than at the same time last year, and they’re selling 27 days faster than the previous month. The phrase “selling like hotcakes” comes to mind.

Home loan repayment deferral exits have exceeded entries to the loan deferral arrangement for the last two months in a row and we’re around half of the peak number of mortgages that were in repayment deferral. This can be viewed with a glass half full or half empty.

Home loan interest rates are at record low levels with the prospect of further decreases by the RBA and the expectation that interest rates will remain low for the next 5 years.

Lending policy is loosening. Some of the COVID policy restrictions have been lifted, in a sign that Lenders are comfortable with where the economy sits now. Additionally, the Federal Government announced they’re going to unwind some of the onerous lending laws to increase the flow of credit. The latter cannot be understated and could have a huge impact on the property market in 2021.

There is a shortage of properties for sale in Melbourne and there is significant demand. During the harsh stage 4 lockdown, I had multiple clients purchase properties without setting foot on the premises. I also have a record number of pre-approvals in place and my colleagues in the Mortgage Broking industry are reporting similar results. 

Whilst the 2020 Federal Budget focused heavily on tax cuts, the labour markets, and infrastructure spending, an extension of the First Home Loan Deposit Scheme (FHLDS) was also announced, though this is now restricted to new buildings. The FHLDS can be used in conjunction with the First Home Super Saver Scheme and HomeBuilder grants, as well as relevant state and territory grants and concessions.

In closing, the expected flood of distressed sales onto the market has not happened and it’s my view that if we can contain and manage future outbreaks of Coronavirus, or in a perfect world, we get a vaccine on a mass scale, then competition for quality homes in Melbourne and Sydney in 2021 will be fierce.

What does this mean for you? In my time in lending, it’s never been more difficult to obtain finance. Lenders still have an appetite, however, even the ‘vanilla’ applications are coming back with nonsensical questions. So if you’re looking to enter the market it’s very important to complete a holistic review of your finances first. I don’t mean on the back of a napkin or over a coffee. I’m referring to a meticulous understanding of your financial position, now and into the future. This is what your proposed Lender will be seeking to understand, and given what we have all witnessed in 2020, I think it would be wise to follow their lead.