If you're currently weighing up buying an investment property, you might want to think again.
Credit Suisse says property investment in Australia is now "riskier than the equity market, particularly in New South Wales".
In a note to clients, analysts Damien Boey and Hasan Tevfik say that home-buying conditions have deteriorated sharply, and, "Surveys point to very weak home-buying sentiment in NSW, the state that had previously benefitted the most from investors and foreign buying".
And they warn, "Housing is no longer the 'safe-haven' asset relative to equities".
Macquarie Research is forecasting house prices to fall 7.5% from March 2016 in a note entitled, "Australian Banks: What goes up, must come down". Clearly they see risks to bank earnings falling, along with dividends – as we noted earlier today.
Bank of America Merrill Lynch Australian economist Alex Joiner has also told clients high historic indebtedness coupled with a chance of a downturn in house-building and prices could have a negative impact on consumer spending and property investment once the RBA is forced to tackle inflation by lifting interest rates.
Household debt to GDP ratio currently stands at a record high of 133.6% according to Fairfax Media. Household debt includes mortgages, credit cards, overdrafts and personal loans.
For those who may not remember, Sydney median house prices plunged 14% between September 2008 and March 2009, and then dropped another 10% in six months in 2011, according to data from the Australian Bureau of Statistics.
Building approvals and housing commencements are reportedly running well ahead of demand, although have trailed demand for a number of years, so may be playing catch up. The concern is that supply shoots through on the other side, causing massive oversupply of housing and pushing residential property prices down.
For some property buyers today, that means a high risk of negative equity in the near future i.e. having a mortgage more than their house is worth.
Foolish takeaway
That's why the stock market could be a better bet for your investment dollars now. With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) still down 7.8% since early August, that means there are still some bargains to be had – as we outlined here.
