Should you worry about house price falls?

The latest Corelogic house price movements don’t make good viewing for Australia’s two largest housing markets. Sydney dwelling prices fell 0.3% in August and Melbourne dwelling prices dropped 0.6%.

For homeowners it doesn’t really matter what house prices do. You’re stuck with a (probably) large debt and you need to keep repaying the loan. Of course, ideally you’d like house prices to go up. But lower prices could actually mean lower price-related fees such as council rates.

Property falls are much more damaging for leveraged-up-to-the-neck investors. I’ve never understood the obsession with buying as many properties as possible using large amounts of debt. This tactic worked well with lowering interest rates – lowering holding costs and boosting asset values. However rising interest rates and a large shift to principal & interest repayments could be damaging.

It’s the above investor situation that makes me very cautious on bank shares like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). The percentage of loans that are in arrears beyond 90 days is increasing.

I have always been uneasy with the idea that residential homes are used as tools for investment property empires. Commercial property investment I am all on-board for, but someone owning 100 or more residential houses seems odd. Particularly when the underlying value only rises as fast as the rent. Not only that, houses deteriorate over time and require regular maintenance.

I don’t think every share market investor should worry about the house price falls.

However, SMSF investors, listed investment companies such as Australian Foundation Investment Co. Ltd. (ASX: AFI) and Australian index funds like Vanguard Australian Share ETF (ASX: VAS) may all be in for a tough time in the short-term because the banks make up such a large part of the portfolios.

Individuals businesses that are heavily reliant on discretionary spending and the ‘wealth’ effect could also come under pressure. I am thinking of shares like JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN) and Nick Scali Limited (ASX: NCK).

However, there are also many quality ASX shares that have little to do with Australian house prices nor discretionary spending. Which is why I’m not worried for my portfolio.

That’s why I’m attracted to this top ASX stock. It is growing profit strongly and would do even better if a recession hit.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

Click here it's FREE!

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

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!