There’s more evidence Australian house prices have bottomed out and are rising strongly in major cities like Sydney after the Australian Bureau of Statistics released its latest household lending data.
Over August 2019 home loan lending that, inter alia, includes new mortgage commitments, investor lending, and mortgagor refinancing grew 3.2%. This follows a strong 4.3% rise in July and 1.8% rise in June.
Other data from property analytics business CoreLogic showed Sydney and Melbourne median residential property prices increased 3.5% and 3.4% respectively over the quarter ending September 30 2019. Nationally prices rose 1.7% over the quarter.
Expanding credit growth is a positive for the major banks like Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC). The cherry on top being that home loan lending is their most profitable business on a risk adjusted basis given the loans are securitised against the physical property.
Given the fundamentals of ultra-low interest rates and the banking regulator APRA loosening lending restrictions it’s no surprise the data is pointing to rising house prices.
The caveat is that prices are largely rising on the back of more debt, which means banks and their investors are increasingly leveraged to a painful hangover if a global shock sends Australian house prices and banks’ balance sheets into a tailspin.
As an alternative investment to buying the banks you could consider property classifieds business REA Group Limited (ASX: REA). Shares are nudging record highs today as a returning confidence in property markets is likely to lead to a lift in sellers and buyers.
Property won't pay dividends though and comes with a lot of extra costs, unlike our Top 3 Dividend Bets for 2019
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You can find Tom on Twitter @tommyr345
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.