Below trend growth to continue
NAB’s view is that prices will decline further over the next year or so - led by further declines in Sydney and Melbourne. We also see the adjustment continuing in an orderly manner, with prices remaining well up on 5 years ago.
Market sentiment among surveyed property professionals improved a little in Q1 2019 as the monthly rate of house price decline eased in the first 3-months of the year.
The NAB Residential Property Index rose 5 points to a still very weak -15 as house prices in much of the country continued falling. Sentiment was negative in all states bar SA/NT (where annual dwelling prices in SA remain positive). Sentiment was weakest in NSW and VIC where price falls were biggest. Confidence (based on future house prices and rents) was unchanged at -3 for the next 12 months, suggesting that market momentum will remain weak into 2020. But longer-term confidence has improved suggesting housing market conditions may start improving moving into 2021. The average survey expectation for national house prices for the next 12-24 months is for further declines (but smaller than predicted in the last survey), with WA and SA/NT leading the way for price gains.
Rents are expected to continue growing signalling a further improvement in yields. Our survey results also indicate buying activity in new and establishing housing markets is being supported by owner-occupiers (‘upgraders’ and first home buyers) as investors (domestic and foreign) continue retreating from the market. Access to credit is still the key constraint on new housing development and for buyers of established property in all states.
NAB’s view is that prices will decline further over the next year or so – led by further declines in Sydney and Melbourne. We now expect Sydney to decline by around 20% from peak to trough, while Melbourne is expected to fall around 15%. We expect conditions in Perth to remain weak and the other capitals to hold up better. Overall, we expect the adjustment to continue in an orderly manner, with prices remaining well up on 5 years ago. That said, the moderation in prices has spilled over to housing related activity, with approvals for new building having fallen and dwelling investment showing a sharp decline in the December quarter. While the slowing in construction and potential ‘wealth effects’ may weigh on economic activity, these adjustments are occurring at a time of low unemployment and low interest rates, while population growth remains relatively strong – factors that should work to support the property market.
Find out more in NAB Residential Property Survey: Q1 2019 and the Media Release Residential Property Survey: Q1 2019.
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.