ASX bank shares have been hit hard by the coronavirus-induced bear market so far this year. Some of the biggest names have seen their share prices dragged 20–40% lower since the start of the year.
However, many investors think that ASX bank shares could have further to fall in 2020. Of course, if you're buying for the long-term, I don't think there's too much to worry about.
It's hard to see the Australian Government letting too much stress be placed on the banks amid the crisis. But just in case, what's the outlook for ASX bank shares like in 2020?
How could coronavirus impact ASX bank shares?
The one big liability I see sitting on Aussie bank balance sheets are residential mortgages. Aussies love nothing more than owning property and this has fuelled property prices higher in recent years.
However, reduced migration and a devastating economic impact from coronavirus could change that. In fact, with fewer people left in the country and those who are left with less income, house prices could fall.
That's not necessarily critical in and of itself for ASX bank shares. After all, Commonwealth Bank of Australia (ASX: CBA) is valued at over $100 billion right now.
However, we have seen large property price declines elsewhere in the world in the past. In the United States, property prices plummeted in certain parts of the country in the wake of the GFC.
There's no doubt some investors would be licking their lips thinking about affordable housing. But hold your horses for just one second.
ASX bank shares deliver their dividends thanks to strong earnings. Residential mortgages make up a large proportion of those hefty earnings.
However, a bank like National Australia Bank Ltd. (ASX: NAB) could be hit hard by a property price plummet. More loan impairments, reduced lending volume and the potential for more defaults could create problems if COVID-19 restrictions continue to bite.
Of course, property prices are likely to lag that of the share market. That means we may not see big house price falls until later in 2020, if not 2021 and beyond.
Foolish takeaway
A bank dividend cut is arguably more front of mind for investors in 2020. However, the longer-term implications of a potential property price crash are worth keeping in mind before you decide to buy more ASX bank shares right now.
If you're a buy and hold investor, I still think now could be a good time to invest in high-quality companies that have some implicit government support.
