As reported in The Australian Financial Review, The Australian Prudential Regulation Authority (APRA) is fearful that increasingly risky lending practices may potentially lead to a housing bubble. This is just one factor over past weeks contributing to a sense of unease about property prices.
The bank regulator, by issuing tougher guidelines on the monitoring and managing of mortgage risks, is effectively restricting access to funds to home buyers. This in turn assists the Reserve Bank in maintaining lower interest rates for longer, without inflating the bubble further. Any sustainable fully franked dividend yields will look relatively more attractive compared to bank deposits and will benefit stocks such as Telstra Corporation Ltd (ASX: TLS).
Here are the top 10 indicators of a potential slide in property prices that may impact on sectors and associated stocks:
1.Unsustainable house price increases.
From one year ago, house price in in Sydney and Melbourne are up 18% and 11% respectively.
2. Australia is experiencing the slowest wage growth in over a decade.
This reduces the borrower's capacity to access funds, while household expenditure is simultaneously on the rise.
3. Impact of a deficit levy.
A temporary 1-2 % increase in the marginal tax rate of high-income earners may take some of the heat out of the real estate market. Ratings agency Moody's highlighted possible risks to the housing market if the current price rises were revealed to be "speculative sentiment".
If so this may impact upon digital advertising business REA Group Limited (ASX: REA) that operates realestate.com.au and property developer and investor Mirvac Group (ASX: MGR).
4. China's economy is stumbling (also housing related).
China's economy had the fewest metropolitan areas with house price gains since October 2012. This may cause direct foreign investment in residential property in Australia to decline as investors in China seek liquidity.
5. New loan approvals to owner-occupiers fell in March, the first decline since March 2012.
6. The rate of growth in investor lending has declined quickly over the last few months.
7. First home buyer activity remains subdued.
Points 5 to 7 above would impact on bank profits and in particular the two biggest home lenders in Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). In a downturn, bad loans would also have a significantly negative effect on all banks.
8. The Australian Prudential Regulation Authority (APRA) has cracked down on risky lending practices
Discussed in the introduction above.
9. The overall dampening effect of the budget
An increase in taxes, healthcare costs and the abolition of some family benefits will potentially subdue spending. Sentiment can be easily affected as revealed by the latest ANZ-Roy Morgan indicator revealing that consumer confidence had slumped to its lowest level since the 2008 global financial crisis.
10. The participation rate may continue to decline in the employment figures
More downward pressure on house prices would result from more people giving up on finding work.
