Could Westpac Banking Corp (ASX: WBC) shares be a buy after the Reserve Bank of Australia (RBA) predicted a housing shortfall next year and price rises?
Westpac Banking Corporation, more commonly known as Westpac, is one of Australia’s ‘Big Four’ banks and a financial services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and businesses.
What Did The RBA Say?
The RBA deputy governor Guy Debelle was in Sydney today, talking to the CFA Societies Australia Investment Conference.
According to the Australian Financial Review he said that house prices could have a larger price response if new housing supply doesn’t meet the demand with construction likely to hit a low point next year. Less options for buyers could mean they send the price a bit higher because of continuing population growth.
He also pointed to the fallout of the Royal Commission with tight lending conditions on developers, which could mean supply is even more constrained. However, the possibility of price rises next year (not to mention in the next few months) has meant large developers are prepared to retain their employees through the coming trough in activity.
What Could This Mean For Westpac Shares And Its Dividend?
Westpac and Commonwealth Bank of Australia (ASX: CBA) are the two ASX banks with the biggest exposure to Australia’s residential property market, so they can experience the biggest gains or declines related to how the property market does.
Higher demand for loans from population growth and higher prices could kickstart credit growth for the banks, which is at a very low level at the moment. Their net interest margins (NIM) are under significant pressure because of record low interest rates, so growing the total loan balance could be the best way to grow profit.
However, painful customer remediation is currently putting a dent in FY19 profits. Westpac has a trailing fully franked dividend yield of 6.4%. But some analysts think a dividend cut may be coming, so the future yield may actually be lower.
I’d much rather buy the shares in the free report below for safer dividends compared to Westpac.
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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.