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Why Australia and New Zealand Banking Group (ASX:ANZ) is tipping 15%- 20% house price falls

Auction clearance rates across the nation and Melbourne and Sydney in particular have fallen a long way over the winter and spring of 2018 in an ominous sign that Australian house prices may have room to fall further than the mid-single-digit falls already posted over the past 12 months.

In fact economists and researchers at Australia and New Zealand Banking Group (ASX: ANZ) now expect Sydney and Melbourne house prices to fall 15%-20% from their 2017 peaks in an outcome that could hurt the Australian economy.

According to a report in The Australian Financial Review the researchers cite a number of well known reasons for their bearish prediction including the borrower credit crunch as the big 4 banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) all tighten borrowing limits based on an applicant’s income and expenses.

Notably, ANZ now has Sydney property prices as 9% down their 2017 peak, whereas other data collectors have it around 7.5%. Of course the monitoring of property prices is not an exact science as different properties are always traded at different times and homeowners should take the figures as rough guidance only. For example properties in some areas may already be down 10%-20%, whereas others may only be flat on the prior year.

The analysts also pointed to the fact that the average property on market is now taking 40% longer to sell versus this time last year in a sign that buyers and confidence are disappearing from the market.

However, one company to benefit from the uphill struggle to sell properties is REA Group Limited (ASX: REA) as the operator of realestate.com.au. It makes a lot of money selling products to estate agents that help them sell properties faster, as such the weaker conditions make it easier to sell these products.

For share market investors falling house prices are not good news as they tend to hurt household confidence with Australia’s largest car dealership Automotive Holdings Group Ltd (ASX: AHG) blaming a 45% fall in net profit for the start of FY 2019 on weaker house prices hurting confidence.

Bank investors as well will have noticed declining share prices over the past 12 months, and until the property market turns this could remain a trend into 2019.

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Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia. The Motley Fool Australia has recommended Automotive Holdings Group Limited and 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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