Why the Commonwealth Bank of Australia share price has risen 3.6% today

It’s been a great day for shareholders of Australia’s big four banks after the country’s GDP figures helped alleviate some of the concerns facing investors today.

Indeed, shares of Australia’s majors have all been sold off heavily since the beginning of the year and all four still remain in official bear market territory – defined as a drop of 20% or more – since they peaked between March and April in 2015.

Today, however, the share prices of all four banks are rising strongly. Commonwealth Bank of Australia (ASX: CBA), the country’s biggest bank by market value, has gained 3.6% to $74, while Australia and New Zealand Banking Group (ASX: ANZ) shares have risen an impressive 4.3%. Meanwhile, shares of National Australia Bank Ltd. (ASX: NAB) are up 3.9% and Westpac Banking Corp (ASX: WBC) shares are up 3.4% as well.

What’s happening to their share prices?

One of the major forces driving the banks’ share prices lower in recent times has been fears regarding the health of the Australian property market.

Booming house prices have helped the banks achieve record profits in recent years, but many believe those gains are unsustainable. Indeed, the United States-based Jonathan Tepper infamously predicted falls of 50% in Melbourne and Sydney and up to 80% in mining towns, leading to plenty of speculation about Australia’s ‘Big Short’ event (in reference to the recent movie based on the best-selling book from Michael Lewis).

Indeed, growth in house prices has slowed, and that trend may well continue for the foreseeable future, but many in the industry think it will be a gradual slowdown as opposed to a sudden crash.

Today, it seems more investors are siding with the latter argument after the country’s fourth-quarter gross domestic product (GDP) figures were better-than-expected. According to The Australian Bureau of Statistics (ABS), the economy grew 0.6% over the quarter and 3% year-on-year, while The Sydney Morning Herald also cited data from the Housing Industry Association (HIA) that showed new home sales had risen 3.1% in January.

The argument is that, so long as supply does not begin to heavily outweigh demand for new homes, and as long as the employment rate and loan serviceability both remain steady, then calls for a major pullback in house prices may be overblown. In that sense, a rise in new home sales is encouraging for the banks, which are heavily exposed to the property market through their mortgage books.

Is it time to buy the banks?

Given their heavy price falls over the last 12 months or so, many investors are no doubt tempted to buy shares in the big four banks right now, but I think that would be a mistake.

I’m not predicting house prices will crash, but there is certainly a risk of a pullback while bad debt charges could also rise. If that proves to be the case, the banks’ profits could certainly take a hit, which could well lead to a decrease in dividends while their share prices would likely also retreat even further.

To me, the bank’s shares still appear expensive based on the risks and headwinds they’re facing, making them companies to avoid for now.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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