Housing market sentiment weakened in all states in the June quarter as prices took a backward step and rents slowed. Capital and rental expectations were also more measured, with confidence seemingly undermined by softer economic growth and downside risks posed by the economy’s structural adjustment. WA is the most optimistic state for prices in the next year, followed by Victoria and NSW. Resident owner occupiers more active in the established market, while new developments attract more investors. Foreign buyer activity remains elevated at around 13% of total demand, up from 5-6% in much of 2011.

• The NAB Residential Property Index fell to +15 points in Q2’13 (+35 in Q1’13). WA (+42) was the standout but sentiment was down from Q1 highs. Victoria (+18) was the next best state. Market sentiment was weakest in SA/NT (-9) and Queensland(+4). WA (+72) is expected to remain the leading state, but Queensland (+59) will overtake Victoria (+58) and NSW (+57) by mid-2015.
• Nationwide house price growth slowed to 0.1% in Q2’13, with weaker outcomes reported in all states. Price growth was fastest in WA (1%), but fell in Queensland(-0.5%) and SA/NT (-0.4%). Property professionals were also less bullish in regards to future price growth (all states). National house prices are now expected to rise by just 1.4% in the next year and 2.4% in the next 2 years, despite improved affordability and lower interest rates.
• NAB modelling indicates capital city house prices will grow 3.1% through the year to Q2’14 and 2.5% in the year to Q2’15 – above the survey forecast. NSW (4.1% and 3.6%), WA (5.1% and 3.1%) and Brisbane (3% and 3.4%) outperform, withMelbourne(1.5% and 1.6%) andAdelaide(1% and 1.1%) lagging. See Appendix 1.
• There was a loosening in the national rental market in Q2’13 as rents stalled (0.1%). Income returns were lower in all states. WA (0.8%) was again the standout with rents falling in SA/NT (-0.5%) and NSW (-0.2%). Against a backdrop of slower economic growth and rising labour market pressures, rental expectations over the next 1-2 years were revised down in all states (except Victoria where they were broadly unchanged).
• Resident owner occupiers are still the main players in the new property market, but their share of total demand slipped as demand from resident investors and foreign buyers increased. Demand for new property improved slightly in the inner city and middle/outer ring (especially in NSW and WA). Tight credit was again the main factor constraining new housing development, but concerns about affordability and construction also rose.
• Resident investors saw better value in the established property market in Q2’13 (especially inQueensland), with their share of total demand rising to a high of more than 24%. Demand for inner city and middle/outer ring houses also improved slightly in Q2, but weakened for most other property types. Demand for CBD apartments remains very weak in SA/NT andVictoria. Expectations for capital growth in the next 12 months were scaled back at all price points for both houses and apartments. Employment security is still the main impediment to purchasing existing property (more so than in Q1) as forward labour market indicators continued to weaken.

For further analysis download the full report.

• Quarterly Australian Residential Property Survey – Q2 2013 (PDF 344 KB)