Residential property resilient, big banks win market share in COVID-19

Exclusive near real-time research[1] from digital property settlements leader PEXA reveals:

• After an early fall, property settlements have recovered to be up 8% in 2020[2]
• Refinancing settlements are up 27%, having peaked at 70% growth in June[2]
• Residential property values are down 9% in NSW and 14% in Victoria
• The major banks are regaining mortgage market share

Australia’s residential property market has demonstrated resilience in the face of the COVID-19 pandemic, with property settlements tracking ahead of 2019 levels and households taking advantage of record low interest rates to refinance their mortgages.

The first PEXA Property and Mortgage Insights (PEXA PMI) report, released today, also reveals that there has been a marked swing back to the nation’s major banks throughout COVID-19, with the so-called Big Four now winning new mortgage and refinancing business from smaller institutions after several years of surrendering market share.

The PEXA PMI report – based on real-time data from the 20,000 property transactions settled on PEXA’s leading digital platform every week – reveals property settlement volumes crashed from 20 per cent year-on-year growth in January to negative territory in May and June during the COVID-19-related lockdowns.

Since then, the insights reveal a steady recovery in settlements, which have remained above 2019 levels through to September 2020, with the trend forecast to continue in October. Total sales settlements for the nine months to September 2020 are up 8 per cent on the same period of 2019.

At the same time, refinancing of mortgages soared from approximately 20 per cent growth in January to more than 70 per cent in June, driven by a combination of mortgage stress and mortgagees shopping around for the best deals as interest rates fell to record lows.

This contributed to a 27 per cent increase in total refinances in the first nine months of 2020 compared with the same period in 2019.

The report reveals pressure on property values, which for the first nine months of the year are down 9 per cent in NSW and 14 per cent in Victoria. While NSW values showed a small improvement in the September quarter, values in Victoria declined by almost 5 per cent as the State suffered a second wave of the pandemic.

Commercial property has fared worse than residential property, with values down 14 per cent in NSW for the first nine months of the year.

Although the outlook remains unclear – and the Victorian lockdown will have a lingering impact on markets – PEXA’s analysis suggests the property sector will remain subdued. Consumer sentiment and online property searches fell sharply at the outset of the pandemic but have since shown signs of recovery.

“Analysing previous housing cycles and key economic drivers[1] suggests that in the medium term, house prices and new loan commitments will decline further,” the PEXA PMI report says. “Even after recovery in the key drivers of housing activity, there is likely to be a lag before any increases in property values and sales emerge.”

One of the key findings of the report is the significant lending shift that has occurred from non-major banks to major banks for new mortgages and refinances in most states, with majors entering a ’net win’ refinancing position from May 2020. June was the first month in more than two years in which the major banks outperformed smaller lenders in refinancing.

“The non-majors had been steadily chipping away at the majors’ refinancing share for at least two years but that was lost with the advent of COVID-19,” the PEXA PMI report says. “As is the case for new mortgages, the majors’ growth in refinancing share may be attributable to competitive offerings and responsiveness to market conditions throughout 2020.”

The PEXA PMI report has been overseen by economist Dr Craig Emerson and is based on analysis of PEXA’s electronic conveyancing transactions to enable the compilation of data in real time, providing early insights into trends in the property market at national, state and even local levels. 

PEXA Chief Executive Glenn King said PEXA had been able to combine its own data with other data sources, including research undertaken by the Melbourne Institute of Applied Economic and Social Research, to identify trends in property sales and financing quickly and comparing them with previous periods.

“Analysis of this data, captured in real time, provides unprecedented early insights into behavioural shifts in the property market, at national, state and local levels.” Mr King said.

Register here to receive a copy of the full report.

[1] In conjunction with the Melbourne Institute of Applied Economic and Social Research.

[2] NSW, Victoria, SA, Queensland, WA