Sydney house prices could plunge even further this year, with some underlying factors going against it.
Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) have already tightened their lending standards in light of the Royal Commission report. They are probably going to stick to those standards with APRA & ASIC being told to keep on top of things.
But, another factors that could lead to falling prices is that vacant properties have increased by 40% to 22,426 according to SQM Research, as reported by the AFR.
The vacancy rate is currently sitting at 3.2%, with more and more completions occurring this year.
Louis Christopher from SQM Research said that the vacancy rate could rise up to 4% this year, which was last seen during the post-Olympics in 2004.
Sydney's asking rent prices fell 4.5% over the past 12 months for houses and 2.8% for units. As share investors know, a fall in earnings usually leads to a drop in the value of shares, so if property acts somewhat like shares then a drop in rent could also lead to a drop in house prices.
In January 2019 Sydney saw its dwelling prices fall by 1.3% in just one month, which is an annualised decline of 15.6%. Of course, I don't expect Sydney prices to fall by another 14% this year, but some market commentators think house prices could fall by 10% this year.
Foolish takeaway
Over the past 12 months, Sydney house prices have fallen by 9.7% and I think this could make things challenging for a variety of businesses, from Avjennings Ltd (ASX: AVJ) to Stockland Corporation Ltd (ASX: SGP) and Boral Limited (ASX: BLD).
