Login
ISCOVER
There are six key megatrends that NAB has uncovered as opportunities for brokers in the year ahead. Here, we unpack what they are
While the year 2022 has seen a shifting economic environment, high inflation and rapidly rising interest rates cloud the economic outlook, there are still plenty of opportunities for the broker channel in the coming year, according to National Australia Bank (NAB).
In its ‘Market megatrends 2022: Uncovering the opportunities for brokers report’ – a combination of bespoke insights from NAB’s group chief economist, Alan Oster, and head of behavioural and industry economics, Dean Pearson, as well as in-depth analysis from CoreLogic and broker feedback – the bank has identified six ‘megatrends’ that are shaping today’s market and rewriting the way brokers and customers approach home buying and lending now and into the future
The pace of change
While a number of risks could cloud the economic outlook (particularly international and geopolitical events), the report suggests Australia’s property market will likely experience less volatility moving forward.
According to NAB’s group chief economist Mr Oster, slowing global growth, high inflation, low unemployment and rising rates mean that while Australia’s economy is “delicately poised” heading into 2023, it is not likely to enter a recession.
In the report, Mr Oster forecast that the official cash rate will likely reach “at least 3.10 per cent by the end of 2022 or early 2023”, with the Reserve Bank of Australia expected to proceed “much more cautiously as it assesses the impacts on households and businesses, and the shifting global economic environment”.
Property markets reacted strongly and swiftly to extremes in economic activity over the COVID-19 period, but conditions are now returning to pre-COVID-19 norms, according to CoreLogic’s head of research, Australia, Eliza Owen. Ms Owen added that Australia could “look forward to… a bit more of a normalisation in the change in housing values and the pace of sales volumes”.
She also went on to say: “The social and economic progression beyond COVID will likely extend to housing market conditions, where transaction activity and price movements may see less volatility in the years ahead.”
A soft landing
Ms Owen flagged that the pace of national home value falls has slowed, which was “quite unusual given the pace of increase that we’ve seen in the cash rate”.
“There is the potential risk or headwind of a lag between an increase in the cash rate and that actually flowing through to mortgage holders but then you’ve got these big tailwinds there as well, which I think will at least insulate the decline from where we thought they may have sat earlier in the rate hiking cycle,” Ms Owen said.
“The tailwinds of returning migration, high rents and strong mortgage serviceability capabilities should help to steady home values once the cash rate has peaked,” she added, flagging that a lack of new listings would also insulate further price falls.
The last major downturn (in 2017) lasted for nearly two years, but Ms Owen expects the current decline to be shorter than previous downturns.
“There are signals that we could already see a stabilising of the cash rate by early next year. And obviously that is going to be the time where this market, this downturn finds its floor. So, in that sense, it’ll probably be shorter than a lot of those historic declines.
“I think something that we might be able to look forward to coming out of these lockdown conditions and emergency rate settings is a bit more of a normalisation in the change in housing values and the pace of sales volumes as well.”
The rise of investors
The report found that rising rent values rose 10 per cent in the year to September, while gross rental yields nationally were up 3.6 per cent from January to September.
“Rising yields coupled with lower purchase prices could create opportunities for the investor segment of the market,” Ms Owen said.
First home buyers in prime position
First home buyers could also benefit in the coming year as vendor discounting from the listing price increased to 4.2 per cent in the three months to September, while time on market increased to 35 days up from a recent low of 20 days, the Megatrends report outlined.
“These trends indicate a shift from a sellers’ market to a buyers’ market, which favours first-time buyers. Falling home prices and extended government guarantees are supporting first home buyers to take their initial steps onto the property ladder,” Ms Owen said.
The refinance boom
Refinance volumes reached almost $19 billion in August, in part due to the fixed rate expiry bubble, which will continue to flow through into mid-2023.
NAB executive, broker distribution, Phil Waugh said NAB was backing brokers by offering appropriate rates and discounts for refinance customers, and fast, seamless processes on like-for-like refinancing.
“The challenge for all lenders in this competitive market is to provide customers with attractive loan propositions while remaining sustainable from a business perspective. Debt-to-income ratios are top of mind, with a focus on DTI ratios that are less than six times,” he said.
A digital revolution
The report highlighted a trend towards increased use of automation and technology in lending and broker businesses, which along with process improvements and product simplification, is making the end-to-end home lending process quicker, simpler and smarter.
The report noted that the rapid acceleration of digital technology adoption — triggered by the COVID-19 pandemic — is expected to continue moving forward, as consumers become more comfortable transacting online.
Indeed, it flagged that the economic value of digital trade in Australia is predicted to grow to $192 billion by 2030 (according to the Export Council of Australia), with technological workforce employees forecast to rise by 5.5 per cent from 2021–27.
Mr Waugh noted that NAB has moved more than 60 per cent of its banking applications to the cloud, which has reduced critical incidents by 87 per cent since 2018.
“We continue to invest to deliver simpler, more digital experiences for brokers and customers. We have started deploying our Simple Home Loan technology to the broker market and we are giving decisions in minutes, not days,” he said.
“The ability for brokers to give an answer on the spot is powerful. If an answer can’t be provided on the spot, the majority are being given within 24 hours.”
In conclusion, Mr Waugh said brokers were in a prime position to help borrowers navigate the changing environment.
“Megatrends are powerful, transformative forces of change and are typically longer term in nature – making their impact all the more significant. While this report helps to identify the latest opportunities, cost of living pressures continue to surface. And while most customers are telling us they are coping okay, we know this isn’t the same for everyone. Brokers are well positioned to provide much-needed guidance to help customers navigate the market.
“As the Bank Behind the Broker, NAB is here to support customers and brokers every step of the way.”
MEGATRENDS ARE POWERFUL, TRANSFORMATIVE FORCES OF CHANGE AND ARE TYPICALLY LONGER TERM IN NATURE
- Phil Waugh, executive, broker distribution, NAB
Market Megatrends 2022 report
You can download the full Market Megatrends 2022 report: Uncovering the Opportunities for Brokers and discover more about the economic environment, the six megatrends and practical tips and observations from experienced broker, here: https://www.nabbroker.com.au/residential/nab-broker-megatrends-report
JOIN THE DISCUSSION