High-profile Sydney real estate agent Mr John McGrath has reportedly uttered words one rarely hears from those who make their livelihood selling property. According to a report in the Australian Financial Review, Mr McGrath recently told a room full of mortgage brokers that he hadn't seen the property market "this hot since the last real estate boom."
With auction clearance rates in Sydney at over 80% and prices continuing to creep up, there is concern that the Reserve Bank of Australia's (RBA) attempts to boost the new home building market are failing and instead driving up the price of pre-existing homes.
Mr McGrath's comments would appear to be in tune with those of investment bank UBS which last week stated that "high property prices, low interest rates and rising unemployment was dangerous and risked creating a housing bubble."
It's certainly not the first time that the words "Australia" and "property bubble" have been muttered in the same sentence. Jeremy Grantham and his team at Boston-based fund manager GMO previously singled out Australia as being in the midst of a dangerous property price bubble. While only time will tell, should these predictions turn out to be correct it would be likely to affect a number of companies exposed to the property sector including the following:
Mortgage Choice (ASX: MOC) is a leading independent mortgage broker that enjoys a large base of trailing commissions. While those trailing commission certainly offer a nice buffer, loan origination fees and upfront commissions would be likely to fall should property market transactions decline.
REA Group (ASX: REA) is one of the primary online real estate advertising portals. The firm holds significant domestic market share, not just in residential but also in commercial property too. The firm has benefited from increased volumes and traffic to its sites for many years but growth rates would no doubt be at risk in a weaker property market.
Homeloans (ASX: HOM) offers borrowers an alternative to the big banks with a number of tailored mortgage offers available. Homeloans has built an impressive business, winning the 2011 Best Non-Bank Lender award and also enticing Macquarie Group (ASX: MQG) to acquire a 20% stake in the firm earlier this year. Given Homeloans doesn't enjoy the balance sheet backing of the major banks, it is potentially more exposed to a housing downturn.
Foolish takeaway
While investors shouldn't rush out and buy or sell quality companies based on the latest market signal or comment, it is important to be aware of potential headwinds or tailwinds and consider if your portfolio is adequately positioned.
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Motley Fool contributor Tim McArthur owns shares in Macquarie Group.
