Banks are nervous, and data shows a lot of deals falling over…
2020 hey? So much new. So much unprecedented. It’s the year that keeps on giving.
So let me give you the latest phenomenon: Boomerang Properties.
A boomerang property is a property that gets sold, but then ends up coming back on the market because the deal falls over – most probably because the buyer can’t get finance.
REA group – the mob who run realestate.com.au – reckon that there’s been a surge in these boomerang properties:
Residential property deals are falling over and homes are being readvertised amid COVID-19 uncertainty and financial belt-tightening.
Data compiled by realestate.com.au shows a growing trend in the number of ‘under offer’ listings being readvertised, prompting speculation that deals are falling through because of tighter lending restrictions by the banks and home buyer cold feet.
Week-on-week figures from realestate.com.au between January and July 2020 shows an increasing number of boomerang homes nationally– that is, properties returning to the market after having an offer accepted.
While there is no requirement for agents to notify realestate.com.au of confirmed sales, the available data highlights a trend in properties transitioning from ‘under offer’ back to ‘for sale’ rather than the site’s ‘sold’ listings.
Banks tighten up as buyers back away
At the start of the first COVID-19 lockdowns, there was a large spike in the number of ‘under offer’ properties across the country that went back on the market with a jump from 13.08% to 17.97% in the week commencing 23 March 2020. The following week the number dropped to 13.76% before decreasing even further but has gradually risen since mid-April.
I’m not sure this is a problem with buyers. I’m not fully buying the “buyers getting cold feet” story.
I think its much more likely that it’s a case of banks getting cold feet in an uncertain economic environment, as REA note:
… We are finding that banks are well-capitalised and they’re not under pressure, but they are nervous about the situation, particularly the unemployment situation,” Ms Conisbee said.
“On one hand, they are lending and they have enough money to lend but they’re being very careful about who they lend to.
“The banks are having to look very carefully at a person’s ability to pay back their loan and in the situation where unemployment is rising, they would be looking very clearly at an individual’s employment situation. I can’t see that changing any time soon.”
To me, that seems likely to be a much bigger part of the story.
We also know that banks are prioritising refinancing over new lending, and there’s been a boom in refinancing that has pushed new borrowers to the back of the cue.
Oddly enough, I reckon all this creates room for potential upside in the market.
The bank’s fears are driven by uncertainty. Buyers want to buy, but the banks lack confidence.
Sooner or later, as the economic picture becomes clearer, bank confidence will return. With that, lending will return.
So what we’re doing now is creating a backlog of demand – buyers who want to and are ready to buy, but just can’t.
Once they get a green light, we might find demand is stronger than we thought.