Australian property price falls could be even worse this year compared to what happened in 2018.
At least, that’s what property billionaire Harry Triguboff told The Australian earlier this week. He said “It may be as bad as last year, it may be worse. Australia is completely dependent on the Chinese. (The slowdown) must affect the broader economy.”
You’d think that he would be the most optimistic as someone who is heavily invested in property and runs apartment developer business Meriton.
He said that borrowers thankfully continue to repay their loans. Mr Triguboff also claimed the banks are not sending people to the walls – a small tick for the banks! National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) could use every bit of PR brownie points they can get.
It certainly hasn’t been a good start to the year for property prices.
CoreLogic’s hedonic home value index showed that in January 2019 Melbourne dwelling prices fell 1.6%, Sydney dwelling prices fell 1.3% and national dwelling values declined 1%. A year of falls like that would represent a 12% drop for national prices by the end of 2019.
Things could become even more difficult if the Royal Commission report suggests that banks clamp down on lending standards even further than they already are.
AMP Limited (ASX: AMP) head economist Shane Oliver now thinks that house prices could fall 15% this year, representing a peak-to-trough decline of 25%. His previous prediction was a 20% decline.
It seems like property pessimism is really kicking in. It’s not like Australia is even going through a recession. Not yet anyway.
The problem for borrowers is that banks keep implementing out-of-cycle interest rate hikes to relieve their funding pressures. NAB increased their interest rates, following on from the other four big banks doing so a few months ago. ING will be increasing its variable home loan rates by 0.15% for new and existing customers next week.
Potential property buyers may be waiting on the sidelines to see how far prices will drop, leaving forced sellers to take whatever they can get.
House prices could keep falling for quite a long way, it’s not as though house prices were cheap on a price-to-income ratio valuation in 2015 or even in 2012. But, the decline could also stop quickly – the worst-case scenario doesn’t often happen.
At this stage I’d want my investable wealth allocated to defensive shares that can keep growing earnings and their distributions even in rough time, that’s why I own one of these top ASX shares in my portfolio.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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