Australian house prices continued to drift lower in July, falling 0.6%. This is the third straight month of declines and follows a 0.7% fall in June. Melbourne and Sydney led the falls in July, dropping 1.2% and 0.9% respectively. Which ASX shares are likely to be impacted by falling Australian house prices?
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ASX shares impacted by house prices
The housing market has been insulated from a more significant downturn by low interest rates, government support, and repayment holidays for distressed borrowers. But the market faces another challenge as Victoria heads into six weeks of hard lockdown. Some have predicted house prices could fall by up to 20% in the state as government stimulus dries up in October and loan repayment holidays end.
Falling house prices can impact ASX shares, as seen during the global financial crisis (GFC). Whilst some query the direct relationship between ASX shares and house prices, I believe two ASX shares, in particular, have their fortunes tied to the real estate market. REA Group Limited (ASX: REA) and Domain Holdings Australia Ltd (ASX: DHG) both run online real estate platforms which will see a slow down in listings as a result of Victoria's latest restrictions.
Impacts of the pandemic
The Australian property market was showing strong signs of improvement prior to the onset of the pandemic. This included improvements in national residential listings led by Melbourne and Sydney. According to REA Group, national listings were up 3% in mid March but fell 2% over the full month as the impact of the pandemic took hold. REA Group CEO, Owen Wilson, commented, "prior to the impact of COVID-19, the market recovery was in full flight."
The real estate market continues to be negatively impacted by the pandemic and surrounding economic uncertainty. Weakness in new listings is expected to impact revenue with REA Group reporting national listings down 33% in April. The impact of this fall will be revealed in the company's full year results which are set to be released on Friday. Domain is due to report its full year results on 20 August but has revealed new listing volumes had declined in the high 20% range in April. Like REA Group, Domain has moved to support its customers during the pandemic with discounts and product initiatives.
Foolish takeaway
REA Group and Domain will be two ASX shares hoping Victoria's latest lockdown doesn't slam the breaks on house prices nationally. With both ASX shares due to report results this month, the financial impact of the pandemic thus far will become clearer.
