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National Australia Bank Ltd (ASX:NAB) lowers house price expectations again

One of Australia’s largest banks, National Australia Bank Ltd (ASX: NAB), has updated its expectations for house prices.

I’m not sure the big banks are the best source of unbiased house price predictions, as it’s like asking a barber what he thinks demand for haircuts will be like.

However, I think it’s a key sign that expectations are being lowered, even if they’re probably being optimistic with those expectations.

NAB said that based on recent momentum and the results of its quarterly residential property survey, it has revised down its forecasts for house prices “a little further” and expects the orderly correction to continue over the next 18 months. NAB economists think Sydney and Melbourne house prices could fall 10% and 8% respectively peak to trough now.

The bank said that both housing credit and investor credit has slowed in recent months. Residential building approvals also continued the downward trend in August, it fell 9.4% following a 5.2% decline in July.

However, NAB still expects the correction in house prices to remain orderly and doesn’t expect a sharp tightening of borrowing conditions in the sector.

The bank pointed to expected population growth to support prices. However, the recent idea floated by the Government to make migrants go to regional areas and less popular states could hamper population growth – some people would say that’s a good thing.

Is NAB a buy?

At the moment I think NAB is my favourite compared to the big banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ).

Not only is it working with fast-growing businesses like REA Group Limited (ASX: REA), Xero Limited (ASX: XRO) and Afterpay Touch Group Ltd (ASX: APT) but it seems to want to change.

In a surprise move the bank didn’t increase interest rates when the rest of its peers had. Putting Mike Baird in charge of the retail banking operations seems like a good idea and he could be the one to bring up NAB’s image.

However, I think NAB is facing a difficult environment and a difficult next couple of years, even if it does become an ‘angel’ amongst its peers. I think there are better growth share options out there at the moment.

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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 AFTERPAY T FPO, National Australia Bank Limited, and Xero. 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 Scott Phillips.

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