Australian house prices are going to keep falling according to analysts at National Australia Bank Ltd (ASX: NAB).

The prediction that dwelling values will keep declining is based on a comparison to full time worker earnings in Sydney and Melbourne.

How Bad Will Things Get?

The Australian Financial Review quoted a note from National Australia Bank director of Securitisation, Ken Hanton to clients, ““With price-earnings multiples in the major Sydney and Melbourne markets still above their 10-year averages and comfortably above their bottom 25 per cent quartile levels, further declines should probably be expected.

However there is still some way to go before these multiples fall outside the ranges that have existed in the post global financial crisis period.”

According to the AFR, NAB said that dwellings are priced at 5.8x annualised weekly full-time earnings, which is more than the 20-year average of 5.5x. This suggests that house prices could fall by another 5% by my rudimentary calculations.

Over the past five years wages have barely moved after you account for inflation, but house prices have gone up significantly due to falling interest rates and rampant speculation by some investors.

The NAB analysts say there is nothing to be worried about in the residential mortgage backed securities (RMBS) market, however that’s not the view of Christopher Joye from Coolabah Capital Investments, a fixed interest investment manager.

Mr Joye recently wrote in an article in the media: “We’ve updated our analysis revaluing recent RMBS bonds with the latest house price movements to end March, and the results look very ugly indeed with one widely held 2018 issue now 11.5% underwater. That is, 11.5% of all the loans in the one ostensibly AAA rated RMBS issue have negative equity.”

He continued: “The bad news is that as house prices continue to fall, and mortgage arrears continue to climb, these risk metrics are certain to deteriorate…And in 2019 RMBS has been the worst performing sector in the Aussie fixed-income market.”

What’s for certain is that Australian house prices continue to drop every month and with banks continuing to implement tougher lending conditions it is likely house prices will drop for at least a few months yet.

I am certainly wary of investing in shares of NAB, Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA). Instead the reliable ASX shares in the free report below.


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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.