Motley Fool Australia

Banks rejoice: House prices to return to 2019 levels

rising asx bank share prices represented by bankers partying in board room
Image source: Getty Images

After a bumper November for their share prices, the good news just keeps coming in spades for Australian banks to start December.

The real estate market, which the sector’s fortunes correlate with, has forgotten all about COVID-19 and is now absolutely buoyant. 

In fact, 24 out of 28 finance experts forecast that house prices would exceed 2019 levels in the coming year, according to a survey by comparison site Finder.

LJ Hooker head of research Mathew Tiller said historic-low interest rates are sending the market into a frenzy.

“One of the main beneficiaries of the ongoing record low rates has been property markets, with LJ Hooker agents reporting a significant increase in enquiries and strong levels of sales transaction volumes.”

A resurgent economy will push banks higher

This, combined with a resurgent Australian economy, is set to fire a rocket under bank shares, according to Ausbil executive chair Paul Xiradis.

“As the economy builds strength, and companies complete their repositioning for a changed world and earnings growth returns, we believe one of the best risk-adjusted opportunities for leverage to a resurging economy is in the banks,” he said.

“Banks are still trading well below their long-term multiples, have experienced less delinquency and bad debts than first thought, and are all well capitalised.” 

Traditionally fat dividends were a big attraction for the major four banks — Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ). But they were forced to cut payouts this year due to the pandemic recession.

Xiradis forecasts this austerity would be short-lived. 

“With leniency recently expressed by APRA in terms of dividends, we expect a resurging banking sector to return to paying more normalised dividends on the back of a resurging economy in 2021.”

Will customers fall behind when government support is gone?

Loan customers falling behind in repayments are a risk due to the higher unemployment rate and the coming withdrawal of COVID-19 government support.

But again, the RBA’s 0.1% cash rate is helping minimise the impact, according to S&P Global Ratings.

“While arrears are likely to rise in the months ahead, it would be off a low level,” the agency stated Wednesday.

“Lower interest rates and boosts to household income have helped to keep arrears low.” 

S&P Global Ratings states reopening borders has eased economic pressures and the risk of loan defaults.

“Household income has been well supported by enormous fiscal stimulus measures, access to superannuation, and lower interest rates,” the agency stated.

“This has helped many borrowers to build repayment buffers and better manage their financial situation.”

All 28 experts surveyed by Finder either thought it “likely” or “very likely” that the Australian economy would exit the coronavirus recession next year.

Even this year, 79% of the boffins suspected the gross domestic product will already have returned to positive growth.

“Official GDP figures for the September quarter will be released this Wednesday, with the general consensus being that Australia may have already exited a recession,” said Finder insights manager Graham Cooke.

“The December quarter is likely to be robust as well, meaning it’s highly probable that we may see a gradual recovery of GDP through 2021.”

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

Related Articles…

Tony Yoo
Latest posts by Tony Yoo (see all)