It’s official: House prices are now falling across Sydney and Melbourne

News reports suggest that the latest property price data for the month of May from leading data provider CoreLogic is set to reveal another month of falling apartment prices in Sydney and Melbourne.

According to the AFR, Core Logic is set to show that overall Sydney home values fell 1.3% in May, with Melbourne falling 1.8% as a combination of higher lending rates and tighter credit conditions start to take their toll on the spending limits of property-mad Australians.

Across Australia it’s being reported that property prices will show a 1.1% fall for May, which follows on from glass flat national price growth in April.

It’s hardly a surprise that markets like Sydney are now flattening or declining on the back of three years of blockbuster double-digit growth, with Sydney dwelling prices reported to be up 16% alone for the year to April 30 2017.

The question on everyone lips though is whether a property price correction, or crash, is coming after years of strong growth?

A marginal correction on the back of tighter lending standards and out-of-cycle uplifts in lending rates as we’re now seeing is no surprise, although if a property collapse (>15%) were to occur investors can take it that they’ll be nowhere to hide across the ASX.

The big home loan lenders like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) would come under pressure, with discretionary retailers like Nick Scali Limited (ASX: NCK) or Myer Holdings Ltd (ASX: MYR) also likely to suffer.

Other businesses on shakier foundations with leverage to residential property markets could cop a real hiding in the face of a collapse such as Yellow Brick Road Holdings Ltd (ASX: YBR), Mortgage Choice Limited (ASX: MOC), or larger providers of lenders’ mortgage insurance such as QBE Insurance Group Ltd (ASX: QBE) or Suncorp Group Ltd (ASX: SUN).

While you never know what’s around the corner, talk of a coming “property crash” sounds preposterous nonsense to me given the fundamentals of government support, global capital flows, and the lower-for-longer lending rate environment.

Still, investment property probably doesn’t represent much value right now given the low rental yields, economic cycle, and limited prospects of capital growth.

I’d much rather enjoy the big yields, capital growth potential, and low hassle of dividend shares, especially when they’re on cheap valuations like The Motley Fool’s Number 1 Dividend Stock to Crush The Returns on Property Today...

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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