The Bendigo Bank looks like it's calling the top of the housing boom

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Changes to the way the Bendigo and Adelaide Bank treats revenue from Homesafe, a way for retirees to access equity in their homes, could be an indication that the top of the housing boom has been reached.

Bendigo and Adelaide Bank shares dropped 4.3% on Monday to close at $10.70 after announcing accounting changes. A short time ago, it was down another 2.7% to $10.41.

UBS noted the change in the bank’s treatment of cash earnings to exclude any unrealised gains or losses from its investment in Homesafe.

This is how Homesafe works. Senior citizens effectively sell a stake of their homes in return for an upfront cash payment to help fund their retirement.

The banks’s ownership stake in the house then rises over time to reflect funding costs with a gain/loss crystallised when the home is sold.

Previously Bendigo marked its unrealised Homesafe positions through cash earnings, reflecting movements in Melbourne and Sydney house prices.

“Going forward only realised gains/losses will be recognised,” says UBS in a note to clients.

“Timing looks unusual. Is BEN ringing the bell on housing?

“While we believe this accounting change is appropriate, the timing is unusual.”

The bank had been booking substantial Homesafe gains through its cash earnings since 2007.

“It is only now as Sydney and Melbourne house prices are in bubble territory and house prices have begun to slip in recent weeks that BEN has changed its policy,” says UBS.

UBS has a sell rating on Bendigo with a 12 month price target of $10.

“Homesafe is extremely lucrative in periods of rapidly rising house prices in Sydney and Melbourne (such as the last three years) but in the event of a fall in house prices or even a prolonged period of flat house prices, is an earnings headwind,” says UBS.

“As a result we are glad to see BEN is no longer mark-to-market these movements through its Cash Earnings.”

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