MENU

Expert warns why Australia has one of the riskiest housing markets in the world

Australians who think that our residential market is as safe as houses will be taken aback by this warning from Oxford Economics.

The research firm claims Australia is among the four riskiest housing markets in the world when measured against some risk factors, including home valuations and debt, as reported by the Australian Financial Review.

Our housing market is arguably the single biggest threat to our economy and a meaningful price correction will hurt the share prices of a wide range of stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).

Australia, Sweden, Canada and Hong Kong have been identified as the highest risk markets and they all have similar characteristics such as a prolonged housing boom, high debt levels, and a significant proportion of mortgagees on floating rate loans.

Oxford Economics pointed out that on a housing valuation index where the long-term average is 100, Australia comes in at 160, Sweden at 165, Canada at 173 and Hong Kong at 203.

History has shown that there is a 60% chance of prices falling in the next five years for markets with a value of 125 or more.

Home prices in Sydney and Melbourne are already falling and this is without any material increase in mortgage rates.

When rates rise in a more pronounced fashion, and that’s a question of “when” and not “if”, Australia could be in trouble as Oxford Economics noted that 82% of mortgagees are on variable rate loans.

It may not take much to put many households under financial stress given that Aussie households are the most, if not one of the most, leveraged.

Add in poor wages growth into the mix and you can see how things can fall like a house of cards. The latest jobs data highlights this risk. While the headline figure was better than expected, underutilisation remains elevated and economists believe it will be a while yet before we get any meaningful wage growth here.

Stocks directly linked to the housing market, such as apartment builder Mirvac Group (ASX: MGR) and residential and retail property developer Stockland Corporation Ltd (ASX: SGP) will be among the first to feel the impact of a housing crash.

But not all companies linked to the residential building sector will be hit as hard. Those that are leveraged to the infrastructure building boom will fare much better.

These includes Boral Limited (ASX: BLD) and Lendlease Group (ASX: LLC).

But there are other blue-chip stocks that are also well placed to outperform in FY19. The experts at the Motley Fool have picked three of their favourite blue-chips for the year and you can find out what these stocks are for free by following the link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Boral Limited. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.