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Time to sell the big banks?

The June CoreLogic home value index has been released today and it showed that national dwelling values dropped by 0.2 during the past month.

National dwelling values have fallen by 0.8% over the past year, continuing the annual dwelling price falls.

Sydney has continued to post a decline in value, with June’s change showing a drop in price of 0.3%. Sydney is down 0.9% for the quarter and down 4.5% over the past year.

Melbourne also dropped in June, it fell by 0.4% in June and it’s down 1.4% over the past three months.

It wasn’t much better elsewhere. Brisbane prices went up by 0.2% for the month, Adelaide prices increased by 0.3% and the Hobart price also increased by another 0.3%. Hobart has gained 12.7% over the past year.

Rounding out the other cities, Perth went down by 0.5%, Darwin declined by a large 1.1% and Canberra decreased by 0.3%.

Regional locations continue to outperform capital cities again. The combined capital city price declined by 0.3%, but the combined regional price stayed flat.

Corelogic’s head of research, Tim Lawless, said that prices are still 32.4% higher than five years ago “This highlights the wealth creation that many homeowners have experienced over the recent growth phase, but also the fact that recent home buyers could be facing negative equity.

“Tighter finance conditions and less investment activity have been the primary drivers of weaker housing market conditions and we don’t see either of these factors relaxing over the second half of 2018, despite APRA’s 10% investment speed limit being lifted this month.”

The Royal Commission’s inspection of the banks appears to be continue having an effect on the market. Anecdotally, would-be borrowers are finding it harder to get approval for loans from Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ). Higher interest costs are also starting to make their way through to loan rates.

I can’t see how the banks can be strong performers for shareholders with house prices declining and rising interest rates. It is more likely to lead to higher bad debts and very slow credit growth, if not declines. On a per-person average basis credit growth may already be negative.

Foolish takeaway

It’s hard to say what house prices will do over the next 12 months, but I have a strong feeling that they will be lower in a year than they are today, despite the declines we’ve already seen.

Global interest rates are rising, foreign buyers are withdrawing and banks are getting stricter – these are three of the main reasons why prices could continue falling over the next few months or even years. I’m actively avoiding having the big banks in my portfolio and I would personally sell if I owned any.

If I had some cash to invest, I'd much rather invest in a top quality growth stock like this one rather than an investment property.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.

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