Why property owners should be worried

Property owners could start feeling the pressure.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's no secret that property prices have slowly but steadily been heading down over the past year. It hasn't been a crash by all means, Sydney house prices aren't far off from being down 5% from the peak last year.

Some members of the government, bankers and economists may be slapping themselves on the back for managing the housing market risk. After all, some shares move by more than 5% in a single day.

However, there is nothing to say that prices will stop declining this month. Credit from Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) has fallen significantly according to reports. Some say it's a drop of 10% to 20% in loan size for the borrower, others have pinned it as an average decline of $200,000 per application.

Whatever the reduction, it's sizeable and this is before the Royal Commission has made any recommendations.

Of course, any predictions about house prices is purely speculation. But, saying that house prices double every seven to ten years is even more speculative!

What isn't speculation is that lenders are putting up interest rates mainly due to rising US Fed rates. Australian lenders are feeling the funding pinch.

Just today, the AFR is reporting that large non-bank lender Pepper Group has put up its interest rate by 0.20% to 0.55% on new loans.

This is on top of other secondary lenders that have already increased rates like AMP Limited (ASX: AMP), Bank of Queensland Limited (ASX: BOQ), Suncorp Group Ltd (ASX: SUN) and ME Bank. Readers may remember that big banks also increased their rates a while ago as well.

Foolish takeaway

Property owners are now experiencing out-of-cycle interest increases at a time when budgets are tight and wage growth is limited. The big banks are already reporting a slight increase in arrears and if interest rates continue to rise you may see more forced property sales.

This is definitely not a prediction of Armageddon, but most of the factors that were working for property owners are now working against them. It would be wise to increase cash in the bank and/or pay down debt in this rising interest environment.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.

More on Bank Shares

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Why are ASX bank shares falling today when investor loans have jumped 30%?

It’s a rough day for the financial sector.

Read more »

Two male ASX 200 analysts stand in an office looking at various computer screens showing share prices
Earnings Results

Macquarie share price sinks despite $1.6b half year profit and new buyback

How did this investment bank perform during the first half? Let's find out.

Read more »

Nervous customer in discussions at a bank.
Bank Shares

Buying ANZ shares? Here's your FY24 results preview

Will the banking giant deliver profit growth in FY 2024?

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend
Bank Shares

The CBA share price trounced the benchmark again in October. Here's how

CBA’s October share price gains see the ASX 200 bank stock up 47% in a year, not including dividends!

Read more »

A man looking at his laptop and thinking.
Bank Shares

Is it madness to buy CBA shares now?

Would I buy CBA shares today? Let's see.

Read more »

Three happy multi-ethnic business colleagues discuss investment or finance possibilities in an office.
Bank Shares

Own NAB shares? Here's your preview of the FY24 result

It’s nearly FY24 report time. What is expected of the bank?

Read more »

A man looking at his laptop and thinking.
Bank Shares

3 reasons Bank of Queensland shares could tumble 20%

This market expert forecasts a major pullback in Bank of Queensland shares.

Read more »

A man looking at his laptop and thinking.
Bank Shares

Own Westpac shares? Here's your FY24 results preview

Australia's oldest bank kicks off earnings season in the banking sector next week.

Read more »