Australia’s residential property markets still look to be on shaky ground after the flagship east coat markets of Sydney and Melbourne posted clearance rates of 59% and 57% respectively over the weekend according to data from Domain Holdings Limited’s (ASX: DHG) domain.com.
The clearance rates usually get revised a little lower later in the week once all the unknown results are reported, which suggests only around 1 in 2 homes across Australia’s major markets met sellers’ price expectations.
This suggests prices will have to be revised lower to meet a softening market that is reportedly being impacted by a brewing credit crunch as banks reign in lending limits in response to the royal commission and other regulatory pressure.
Affordability has also long been an issue in Sydney and Melbourne, with these prime markets long supported by overseas investors who are also now being forced out by increased state taxes on property purchases.
Prices in Sydney are reported to have fallen around 4.5% from their peak in mid 2017, with many forecasters expecting prices to edge lower out to 2020.
Given interest rates cannot go materially lower than today’s 1.5% this is not rocket science, with the soft outlook for property prices also now feeding through into the major home loan lenders’ share prices.
The Commonwealth Bank of Australia (ASX: CBA) has lost around 14% of its value over the last six months, with Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) also losing around 10% of their value over 2018.
For the major banks home loan lending remains the key profit driver and any credit tightening is unlikely to bode well for profits or dividends. As such I’d give bank shares a miss for now in order to focus on better blue-chip opportunities with genuine long-term growth potential.
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You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of National Australia Bank 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 Scott Phillips.