What this Windfall for the Big Four Says About Aussie House Prices

Our housing boom is officially over. That’s the opinion of investment bank UBS.

There were more dire warnings from the bank last week. They believe we’re in for a full blown crash, if the Reserve bank moves on rates.

Oh my we’ve been here before…

Many others have made similar calls in the past. Calling an end to our property market is a road littered with corpses.

I’d be a little cautious calling a property crash.

Here’s why…

I saw the share price of Commonwealth Bank [ASX:CBA] had a big day out last week. That move was on the release of its September quarter update.

So I had a little look at that update, to see what all the fuss was about.

Home lending was up 2.7% for the quarter. Cash earnings were up 6% to $2.65 billion. Revenues were up 4% over the quarter.

It seems CBA has got off to a flying start for the new financial year.

Anyway, what really struck me the most about that recent quarter update, and the reason I’d be a little cautious calling a property collapse, is this.

When I read through it, it revealed the bank’s loan impairment expenses were falling.

Likewise, 90-day consumer arrears for personal loans, credit cards and home loans are also falling.

And as I delved a little deeper, I found it wasn’t just the Commonwealth Bank.

The Sydney Morning Herald reported last week that the big four banks racked up a record $31.5 billion in combined profits this year.

But here’s the important thing to note about the article: The lift in earnings did not come from higher fees or interest revenues.

Instead, almost two-thirds of the 6 per cent rise in profit was the result of fewer customers falling behind on their loans, with provisions for bad and doubtful debts falling to new historic lows’.

Bad debts are at historic lows, and it’s proving a big windfall for the big four.

But you have to think, if house prices had gotten so high and had the consumer stretched to breaking point, you’d expect bad debts at the big four to be rising, not falling! 

Aussie property staying firmly put

That’s why I think property might still have a little more left in the tank.

And the charts are not suggesting a property collapse either.

Housing related stocks should be breaking lower before any collapse scenario.

But for the most part they’re all making new highs and busting higher. That tells you revenues are growing and housing is solid.

When I read that bad debts are at historic lows I find it very hard to get gloomy about the property market and the economy at large. It doesn’t suggest to me that everyone is stretched to breaking point.

It all points to continuing housing strength and consumer confidence. The general trend of shares, property and economic growth remains up.

Everyone will tell you that property is out of control, a bubble, can’t go higher, or is unaffordable.

Property has to be unaffordable.

Property has to sell at the red line of what the economy can afford. It can’t do anything else!

Property — really land price — will go higher from here. But no one will believe it, when I say it.

And all this is further reason why you need to know the real estate cycle.

This is going to be so exciting to watch over the next decade. We are only in the first half of the real estate cycle — the property bears ain’t seen nothing yet.

This real estate cycle is shaping up to be the biggest of all time. If you want to find out how to profit and time it all to your advantage, then go here to find out more.


Terence Duffy,
Editor, Money Morning Trader

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia