The Motley Fool

More pain coming? Experts predict worst Sydney house price falls in 50 years

A group of housing experts have projected that the worst Sydney housing market in 50 years is about to unfold.

The BIS Oxford Economics study shows that the current Sydney house price falls is only halfway in terms of the length of time of property downturns, according to the AFR.

This won’t be music to the ears of executives at 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).

According to the stats, the average downturn for the Sydney housing market is 14 quarters, with an average real price decline of 21%. So far we are only through six quarters of house price declines to the end of the December 2018 quarter. ‘Real’ medium prices show a decline of 16% right now.

The AFR quoted Angie Zigomanis from BIS Oxford Economics as saying “So far, the period of decline in these two markets has been much shorter than the longest downturn duration and around half of their respective average downturn lengths in both the house and unit markets.

“Therefore it is foreseeable that the current downturn in the Sydney and Melbourne markets may have at least another year to run before reaching the cyclical trough”. This would represent the worst house price fall in 50 years if falls continue at the same pace over the next year.

I believe it’s almost certain that March 2019 will show another heavy decline in house prices, even though the Royal Commission is over. Until the clearance rate is materially above 50% it’s likely that house prices will keep ticking downwards.

Australian households remain heavily indebted and the household savings rate has hit a multi-year low.

Some economists are now pencilling in a RBA rate cut (or two) this year, which may do something to ease the pressure on current homeowners. But, people looking to take out a new loan may still face issues relating to their debt to income ratio and the affordability of the loan.

Foolish takeaway

I’m very glad I don’t own an investment property at this stage, or shares of a bank. Until house prices stop falling there is a risk to many of a number of assets and industries related to property.

I would much prefer to hold defensive long-term quality shares such as these in my portfolio right now to weather whatever happens next.

NEW! Top 3 Dividend Stock Ideas for 2019

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn... except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in "The Motley Fool’s Top 3 Dividend Shares for 2019."

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

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.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.