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Sydney & Melbourne house prices fall another 0.7% in October

Property owners look away now, the Sydney and Melbourne house prices fell another 0.7% in October according to CoreLogic.

CoreLogic head of research Tim Lawless pointed to tighter credit conditions as a key reason for the declining house prices. Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) are being more stringent after a bruising in the Royal Commission.

The Sydney dwelling price was down 0.7% for the month, 2% for the quarter and 7.4% over the past year. The Melbourne dwelling price was also down 0.7% for October, down 2.1% for the quarter and 4.7% down over the past year.

It wasn’t good news in most other cities either. Perth prices fell 0.8% in October. Darwin, Canberra and Brisbane prices were all flat.

Adelaide managed a 0.2% increase for the month and Hobart house prices went up an impressive 0.9% in one month. Amazingly, Hobart prices are up nearly 10% over the past year.

Mr Lawless said “The latest results take the annual decline across the national index to 3.5%, signalling the weakest macro-housing market conditions since February 2012, with our hedonic home value index reporting a 0.5% fall in dwelling values nationally in October.

“With such broad-based weakness in housing market conditions, it’s clear that tighter credit availability is acting as a drag on housing demand and impacting adversely on the performance of housing values across most areas of the country.”

Whilst I like to be an optimist about the future of some quality ASX shares, I don’t think this property slowdown is going to stop any time soon.

Leading AMP Limited (ASX: AMP) economist Shane Oliver thinks Sydney and Melbourne prices could fall 20% peak to trough due to a number of reasons:

  • Continued poor affordability
  • Tightening of banking lending standards under pressure from regulators
  • Interest only loans switching to interest & principal
  • Banks withdrawing from SMSF lending
  • A cutback in foreign investor demand
  • Rising unit supply
  • Out-of-cycle mortgage rate increase
  • Falling price growth expectations resulting in ‘FONGO’ (fear of not getting out)
  • Expectations that negative gearing and capital gains tax concessions will be reduced

The above list doesn’t even mention the rising interest rates in the US nor the eventual RBA increasing rates.

Foolish takeaway

The second-tier banks like Bendigo and Adelaide Bank Ltd (ASX: BEN) are also not immune to this. I’ll be giving the banks a wide berth until the property market doesn’t show an annual decline – which could be a while.

However, I’ll still be investing in quality shares like one of these top stocks which is growing profit year after year thanks to the growing retirement population with the baby boomers.

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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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