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Property refinancing activity remains elevated as rates near the peak

By Julie Toth - Chief Economist • 8 Apr 2023

Reserve Bank of Australia building

Today the Reserve Bank of Australia (RBA) held the cash rate steady at 3.6%. This is likely to be only a pause and not the peak in the current cycle of increases that have taken the cash rate from 0.1% last April to 3.6% today. Indeed, the RBA reiterated that “some further tightening … may well be needed” to tame inflation.

The RBA rate rises since April 2022 have been the fastest sequence of rises on record in Australia. Their speed and size have dramatically affected all variable-rate home loan holders and a rapidly rising number of fixed-rate mortgage holders who are reaching the end of their fixed tenure. While today’s pause will be very welcome news to mortgage-holders, the effects of the previous rate rises in this cycle are yet to fully wash through. Today’s pause gives the RBA time to wait for this impact and to assess the effect on inflation.

In response, more loan-holders are actively seeking refinancing options in Australia’s competitive mortgage market, even if their loans are not yet due for renewal. PEXA’s Refinance Index of loan refinancing volumes continues to show elevated refinancing activity in 2023, following a record high month in December 2022. PEXA’s weekly Refinance Index in the week ending 2 April 2023 was at 164.4 points (seasonally adjusted):

  • up by 22.7% from the same week in 2022 (seasonally adjusted);
  • up by 58.0% from the same week in 2021 (seasonally adjusted); and
  • the original (unadjusted) PEXA refinance index jumped to 234.4 points, the second-highest recorded.

Chart 1: PEXA Refinance Index, 3 January 2020 to 2 April 2023 (original and seasonally adjusted index of refinancing volumes per week)

PEXA Refinance Volume Index

PEXA Chief Economist, Julie Toth, said: “The RBA’s decision today brings Australia’s cash rate to its highest level since 2012, with all rises occurring in less than a year. These rate rises have contributed to falling average property prices and sales volumes nationwide, following record peaks in both pricing and sales volumes in early 2022. A cyclical floor already seems to be forming in property market pricing in our largest cities, but this has not yet flowed through to other locations.

“The lack of supply in the face of ongoing demand pressure is providing some support for property pricing, which is good news for sellers. However, it is exacerbating widespread availability and affordability problems for prospective home buyers. Housing availability constraints look set to continue until Australia’s chronic lack of housing supply can be addressed.

“PEXA’s latest Property Now article ‘Australia’s Resilient Housing Demand’ notes that Australia’s demand for housing has remained remarkably resilient, despite the impact of higher interest rates and inflation since 2022. This reflects strong adult population growth and falling average household size (people per household) over a long period. Both of these trends have been amplified by the disruptions caused during the COVID pandemic. Adult population growth is now surging again due to a rapid recovery in net arrivals (permanent and long-term), while smaller households still seem to be preferred by many Australians.

“Looking ahead, the RBA continues to flag the possibility of further rate rises in 2023. The pace is set to slow however, with smaller monthly increases and/or pauses potentially on the horizon as we reach the top of the current rate rise cycle.”

For more information, visit PEXA Data & Insights.

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