Morgan Stanley sees risks for Australian stocks as the housing downturn deepens

what happened

Morgan Stanley, which holds a near-maximum underweight on Australian shares, favours resources over banks and cyclical stocks. The bank argues the current housing downturn is deeper and structurally different from past cycles, so the strategy of buying property-linked shares ahead of RBA rate cuts may not work this time. National house prices have fallen for six straight months and sit 5.2% below their March peak. Morgan Stanley raised its forecast decline from 5–10% to 10–15%, and sees a trough unlikely before the second half of 2027. The RBA cash rate is 4.60%, unemployment has reached 4.7%, and the bank forecasts 2027 GDP growth of 1.1%.

why it matters

For markets, consensus earnings for housing-exposed stocks have so far held up, but Morgan Stanley says the bigger downgrades are still ahead. By its valuation analysis, banks and consumer stocks have more room to de-rate than housing stocks, which already trade near typical relative P/E troughs. UBS also expects dwelling prices to keep falling for at least another year and warns that lower stamp duty revenue could leave state budgets around $30 billion short.

market impact

Banks and consumer stocks on ASX 200: a weak housing market pressures earnings forecasts and valuations

instruments