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House prices fell in December

Corelogic will report on Tuesday that house prices in Sydney continued their descent, according to Fairfax Media Limited (ASX: FXJ).

The headline figure is that home prices have fallen around 0.5% in December, with Sydney posting a 0.9% drop. Adelaide was the only city to generate growth over the month, rising by 0.1%.

This means that Sydney house prices have fallen by more than 2% since September.

Market commentators have been saving for months, even years, that Australian house prices have become too inflated. All-time high debt ratios and price to income ratios are some of the most quoted statistics to show property has gotten out of control.

The price falls have been gentle so far, which the government and RBA will be thankful for. No-one wants to be responsible for a property crash.

The RBA may come under pressure next year to raise the interest rate, to follow other countries like the USA and Canada. Low interest rates are not good for anyone over the long-term, with savers’ income squeezed and too much debt accumulated.

An interest rate rise could hurt house prices further, but delaying the inevitable is only pushing the problem under the rug.

Inflation is starting to kick in, with oil and power prices up significantly compared to a year ago. However, raising rates due to this could be problematic for people if wages aren’t rising faster than inflation. Household budgets are already tight.

Instead, if I wanted property exposure, I’d rather buy property-related stocks like REA Group Limited (ASX: REA), Domain Holdings Australia Limited (ASX: DHG), Reece Ltd (ASX: REH) and DuluxGroup Limited (ASX: DLX).

It will be fascinating to see what happens in 2018. Industry experts are predicting growth for the property market, but I personally think it’s more likely 2018 will post a decline of around 4% to 6%. First home buyers will be crossing their fingers prices go down whilst indebted investors hope for growth.

I wouldn't want to be a property investor at the moment. Declining property values, a huge loan and negative gearing could be a big drain on an investor's wealth and monthly finances. I'd much rather invest in shares like these growth shares.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. 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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