Housing market sentiment strengthened notably in Q3, underpinned by an acceleration in house price growth in all states (bar WA). The Survey is pointing to faster price growth ahead (led by NSW and Queensland), but gains are expected to be relatively modest. Demand has improved for all types of new and established property. Property professionals continue to cite tight credit and employment security as the key obstacles to buying property.

• NAB’s Residential Property Index rose 17 to +32 points in Q3 (second best result since survey began). NSW (+47) saw the biggest improvement, withVictoria(+40) the next best state. A big improvement was also noted in Queensland(+31). WA (+13) was the only state reporting weaker sentiment. Queensland(+79) and Victoria (+79) are set to emerge as the strongest states in the next 2 years. Sentiment weakest in WA (+71), but at relatively elevated levels.
• National house prices rose 1.3% in Q3, with faster growth in all states (except WA). Capital values up most in NSW (1.9%) and Victoria (1.5%) -Australia’s two largest housing markets. Property professionals are also more optimistic in regards to future house price growth. National house prices are now tipped to rise 3.3% in the next year and 4.5% in next 2 years, with stronger outcomes in all states. NSW to out-perform.
• NAB’s view of the market is slightly less optimistic than the survey, with rising unemployment expected to dampen house price growth over the outlook period. NAB sees capital city house prices rising by 3½% in the year to September 2014 and 3% in the year to September 2015. More detail is contained in Appendix 1.
• A combination of slow rental growth and faster capital appreciation suggest rental yields are eroding. Rents increased just 0.2% in Q3’13. Rents fell in WA (-1%) and SA/NT (-0.3%), but increased in NSW (0.9%), Queensland(0.7%) and Victoria(0.3%) .Queensland and NSW are expected to be the standouts for income growth in the next 1-2 years, with returns weakest in SA/NT.
• There was a big jump in demand for new property from owner occupiers in Q3 (led by Victoria and WA). First home buyers retreated from the market with demand from Australian investors also slightly lower (except in NSW). Foreign investment activity rose in NSW but slowed in Victoria. There was a big improvement in demand for all types of new property in Q3, with the inner city seen as the best location in all states. Credit availability continues to be cited as the most “significant” constraint for new housing developments.
• The established property market continues to be dominated by up-graders. Resident investors were slightly less active in the market in Q3 in all states (except NSW). Demand for established property strengthened in all market segments in Q3 (and in all states) and was strongest for houses and inner city low rise apartments. Capital growth expectations over the next 12 months improved at all price points for established houses and apartments, but the bulk of growth is still expected to come from less expensive stock. Employment security is still seen as main impediment to buying existing property, but concerns over lack of stock also rising.

For further analysis download the full report.

• Quarterly Australian Residential Property Survey – Q3 2013 (PDF 223 KB)