Housing market sentiment lifts in Q4, supported by faster house price growth in all states (bar SA/NT). House prices expected to keep growing in next 1-2 years, but at slower rate than predicted in Q3 survey. Queensland is the exception and now set to lead country for capital gains. Demand improved for all types of new and established property, with local and foreign investors significant players in the market.

• NAB Residential Property Index up +4 to +36 in Q4 – highest read since survey began. VIC saw biggest increase and replaced NSW as strongest state. VIC and QLD most optimistic in next 1-2 years; WA revised down heavily.

• House prices up 1.6% in Q4 led by NSW and VIC. Outlook for prices softer and now tipped to rise 2.9% in next year (3.3% previously) and 3.7% in following year (4.5% previously). Expectations lower in all states except QLD which is now expected to provide the biggest returns in next 1-2 years.

• NAB’s view of the market more optimistic than average survey forecast. NAB sees average capital city house prices rising 6% in year to end-2014 and 5% in the year to end-2015 (more detail contained in Appendix 1). Part of this reflects the influence of foreign buyers in the market, who account for 11% of all new property demand and around 6½% of the established property market (see chart below).

• National rents ticked up a little in Q4, but combination of slow rental growth and faster capital appreciation suggest yields continued to erode. Rental growth fastest in NSW and weakest in WA. NSW and VIC the standouts for income growth in the next 1-2 years with returns weakest in WA.

• Local investors played a bigger role in new property market in Q4, especially in QLD. Foreign investors slightly less active but still represent a significant part of the market.

• Moderate increase in demand for all types of new property in Q4 with inner city the best location in all states.

• Concern over housing affordability and credit availability identified as main factors constraining new housing development, but the level of concern around credit has faded significantly over past year.

• Demand for established property stronger in all market segments in Q4, led by houses in the inner city and middle/outer ring.

• Capital growth expectations for established houses and apartments higher at all price points (except <$250,000 although this segment still set to out-perform). Premium market showing signs of recovery.

• Employment security still viewed as biggest impediment to buying existing property in most states (especially Victoria and WA), but concern also growing about price levels and lack of stock.

For further analysis download the full report.

• Quarterly Australian Residential Property Survey – Q4 2013 (PDF, 185 KB)