The NAB Residential Property Index continued its upward momentum in the March quarter as dwelling values grew in most capital cities and regional areas, and rental growth remained elevated across much of the country. The market share of foreign buyers in new housing markets fell slightly this quarter but remains above average. Construction costs and rising interest rates, despite no further hikes in policy rates in Q1, were still seen as the biggest constraints on new housing developments.

NAB’s views on the property market are largely unchanged. While price growth has slowed the significant supply/demand imbalance in the housing market is likely to continue to support both prices and rents in the near term, despite the high level of interest rates and other pressures on households. More broadly, the economy and labour market have been resilient, but we expect weak growth to persist in the near term and the unemployment rate to rise in 2024. That should see the RBA begin to ease rates from around November, taking the cash rate to around 3% by end 2025.

Survey highlights

• The upwards momentum of the NAB Residential Property Index continued as dwelling values grew in all capital cities and regional areas over the 3-months to March (except in Melbourne), and rental growth remained elevated across much of the country. Overall, the Index rose to +57 in Q1, from +46 in Q4 and +40 in Q3, and +9 at the same time last year. The index is still at its highest level since Q1 2022 and trending well above average (+19).
• While the headline result was strong, outcomes were mixed across the states and territories. The state index rose everywhere except for WA (+80 from + 96) and the NT (0 from +25). States that were previously in negative territory have seen improvement: the index for the ACT made significant gains (0 from -42), as did the index for TAS (-20 from -63), though it remains negative.
• Confidence levels among surveyed property professionals continued to increase and did so more sharply than in the previous quarter. NAB’s one-year confidence measure lifted to +68 (+55 in Q4), and the 2-year measure to +67 (+56 in Q4). Consequently, housing market confidence levels are now at their highest levels in 2 years and well above long-term survey averages (+37 & +45 respectively).
• Average survey forecasts for national prices were revised up to 2.8% in the next 12 months and 3.4% in 2 years’ time. Expectations for stronger growth in the next year reflected upwards revisions to the outlook in QLD (3.4%), SA (3.1%), NSW (2.7%), VIC (1.6%) and the ACT (1.5%). House prices are expected to grow in other parts of the country, though more slowly than was previously expected – over the next 12 months, growth of 5.2% in WA and growth of 0.9% in the NT is expected.
• The Q1 NAB survey showed once again that the majority of property professionals characterised rental markets in their local areas as undersupplied, and average survey forecasts for rent growth in the next 12 months and 2 years’ time were 3.8% and 4.3% respectively. The average survey forecast for rents in the next 12 months is positive in all states, and growth is expected to accelerate in VIC, QLD, SA, and TAS, and slow elsewhere.
• The overall market share of all First Home Buyers (FHBs) in new property markets declined to 29.3% in Q1 2024, its lowest share since 2016. On average, the market share of sales to owner occupiers (net of FHBs) reached an 11-year high of 42.2% after retracing its slip in Q4 (to 38.5%). The market share of total sales to resident or domestic investors in new housing markets was relatively unchanged at 17.8% in the March quarter (from 17.7% in Q4, and still below the survey average (21.6%).
• The majority of survey participants (76%) still saw construction costs as a barrier to starting new residential projects in Q1 – particularly in VIC (88%) and NSW (79%). Delays in obtaining planning permits were another notable barrier to starting new projects, with around half of survey respondents identifying this as a concern. With policy rates not rising again since November, fewer property professionals saw rising interest rates as a barrier (39% down from 55%).
• In established housing markets, owner-occupiers (net of FHBs) continued to dominate sales activity, and their overall share of the market rose to 44.1% in Q1 to be above the survey average. The share of FHBs fell slightly in Q1 to 33.2% but remained above the survey average. In contrast, the share of local investors in the market picked up in Q1 to 17.1% but was still down on the survey average.
• Rising interest are still seen as the biggest constraint for buyers of existing property nationally in Q1 this year – but it weighed a little less heavily on buyers than previously as policy interest rates remained on hold after last being raised in November 2023. Lack of stock was the next biggest constraint for buyers overall but viewed as somewhat more problematic for buyers in WA, SA, and QLD.
• The market share of foreign buyers in new Australian housing markets in Q1 fell slightly, from last quarter’s 6½ year high, to 10% (from 11% in Q4), but remains above the long-term survey average (9.1%). This reflected falls in market share in NSW (12%) and WA (11%). The market share of foreign buyers increased in QLD in Q4 (7.6%) and remained steady in VIC (10%). However, the market share of foreign buyers remains above average in all surveyed states.
• Despite the slip, there has still been a near five-fold rise in foreign buyer market share in new Australian home markets since hitting a low of just over 2% during the COVID-pandemic in mid-2021.

NAB’s view

Our outlook for property prices is broadly unchanged with price growth over recent months tracking largely as expected. We continue to expect dwelling prices across the capital cities to grow by around 5% this year and 4% next year. While dwelling price growth has slowed after rebounding relatively quickly from the initial fall as rates rose, the ongoing imbalance in the demand and supply for housing is likely to persist for some time. The pressure has been broad-based across that’s, though price growth has shown some divergence.
More broadly, economic growth has slowed but population growth has been a key support to aggregate demand. Consequently, the labour market has remained resilient as have business conditions and capacity utilisation in our business survey. That said, we expect growth to remain weak in the near-term and for the unemployment rate to drift higher. That should see the RBA being to ease rates from around November, taking the cash rate to around 3% by end 2025. An ongoing easing in inflationary pressure remains key for this outlook.