Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy? It's worth considering for value investors.
ANZ is one of Australia's biggest banks along with Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
ANZ shares have suffered along with the rest of the banking sector in the wake of the Royal Commission, which is due to be submitted by 1 February 2019.
The ANZ share price is down by more than 10% over the past year. In some ways, you could say ANZ is 10% better value. Its price / earnings ratio has dropped to under 11x forward earnings. What other blue chips look this cheap?
Although the whole share market is down over the past few months, I think the ANZ share price and total return is intrinsically linked to the performance of Australian house prices, particularly Sydney and Melbourne.
According to the CoreLogic December home value index results, Sydney house prices fell by 8.9% in 2018 and Melbourne house prices dropped by 7% during the year.
Lower house prices means smaller loans being written, less demand for loans from investors in-particular and slowly rising arrears. These are all headwinds for ANZ's share price.
A lot of investors simply used the equity in their property to purchase another one. Falling house prices means that trick isn't available at the moment. In-fact it could be a problem with most multi-property investors being heavily negatively geared, meaning they're losing money every month.
The official recommendations from the Royal Commission are expected to lead to sensible lending conditions and checks, which may make it even tougher for some potential borrowers.
I think all of the above is very important when considering investing in ANZ shares because its success is largely linked to Australia's housing market, which is currently on the decline.
The Royal Commission has already cost ANZ $377 million for refunds to customers and related remediation costs, with $55 million of external legal costs. There could be more costs to come in FY19.
Foolish takeaway
Until the housing market consistently stops falling, perhaps meaning a couple of quarters of growth, I don't think the ANZ share price is a buy. It does have a very attractive grossed-up dividend yield of 9% which the bank will probably fight hard to maintain, but I think there should be more to an investment idea than just the dividend.
