National Australia Bank Ltd (ASX: NAB) analysts now think that house prices could drop 20%.
Banks like NAB, Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) have huge loan books riding on Australian house prices.
Australian House Price Predictions Get Worse
According to Australian Financial Review reporting, NAB now believes that Sydney house prices could fall 20% from the peak to the worst point during this cycle.
CoreLogic has already reported that Sydney house prices have fallen 13.9% since peaking, with 10.9% of the fall over the past year. Therefore, if we take the CoreLogic figures as the best measure, NAB are predicting house prices are only going to fall another 6.1%.
The problem is that house prices are falling by around 1% a month, which means NAB thinks the declines are going to halt before Christmas.
Chief economist at NAB Alan Oster was quoted by the AFR as saying: “We thought they’d probably stay around 12 per cent and we’ve already seen 3 or 4 percentage points more this year – we’re almost at 15 per cent“.
The NAB forecast isn’t taking into account any taxation changes that Labor are planning, such as negative gearing and capital gains.
NAB’s economists also pointed to the fact that tighter lending standards could remain the key limiting factor to house price growth as a result of the Royal Commission and continuing house price falls.
The falling house prices are a leading cause for many cyclical businesses reporting that their sales growth is slowing. We have seen this from JB Hi-Fi Limited (ASX: JBH), Nick Scali Limited (ASX: NCK), Harvey Norman Holdings Limited’s (ASX: HVN) franchisee stores and so on.
Maybe the NAB economists are right and things will turn around by the end of the year, but I’m not seeing that catalyst at the moment.
Just today we heard from Bank of Queensland Limited (ASX: BOQ) that its earnings had fallen by 10% in the half year result. It’s not an easy operating environment for banks out there right now. That’s why I think the reliable ASX businesses in the report below are better long term picks.
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