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Is this the only bank stock worth buying as the housing fall accelerates?

Forecasts by bearish analysts for a 15% drop in house prices may prove to be too optimistic!

The preliminary national clearance rate indicates that more than half of properties under auction failed to sell for a third week running – a development that’s likely to prompt forecasters to take a razor to their price outlook for our residential market.

The word is you can blame the banks for the steepening decline as property agents are telling the Australian Financial Review that mortgages are getting increasingly harder to secure.

AMP Limited’s (ASX: AMP) chief economist Shane Oliver pointed out on Twitter that there is downside risk to his forecast for a 15% peak-to-trough drop in house prices out to 2020.

Buyers downsizing in the same area are having a good time as banks are reportedly favouring this lower-risk group.

Unfortunately, just about everyone else is facing more challenges in getting a tick of approval from their banks and this is unlikely to change for a while yet.

Westpac Banking Corp (ASX: WBC) is most exposed to the falling housing market but the other big banks will be under the pump too as Westpac, Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) are the biggest home loan lenders in the country, controlling around 80% of the market.

The news will pour cold water on the upcoming bank reporting season where three of the big four are tipped to splash investors with around $8 billion in dividend payouts (click here to read more about this).

But I am staying out of that pool until I get more confidence that home price drops are decelerating, although there’s one bank that’s dropped into the “buy zone” in my opinion.

This is UK challenger bank CYBG PLC/IDR UNRESTR (ASX: CYB), which owns Clydesdale Bank and Yorkshire Bank.

Its share price has collapsed over 17% since August to $5.22 – nearly twice the loss of CBA or Westpac over the same period and more than 10 percentage points behind the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.

CYBG has been on the nose since warning that mortgage competition in the UK is increasing, although the sell-off looks like an overreaction since management is sticking to its net interest margin (NIM) target of 220 basis points for the year.

Its small business lending division is also going gangbusters even though it’s less than a third of the size of its mortgages business.

But I think these challenges are nothing compared to what lies ahead of Aussie banks and CYBG is the only bank stock that I think is underappreciated.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, CYBG Plc, National Australia Bank Limited, and Westpac Banking. 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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