• Current market sentiment among property professionals still negative but lifted in Q2 post the Federal election.
• Future expectations also improved sharply, reflecting a stronger outlook for prices and rents.
• WA & Qld to out-perform, with timing of recovery in Vic and NSW also pushed forward.

Housing market sentiment among surveyed property professionals lifted again in Q2 post a federal election result that removed investor uncertainty over capital gains tax and negative gearing, and a further easing in the monthly rate of decline in house prices.

Overall, the NAB Residential Property Index rose 7 points to a 12-month high -8 points. Sentiment improved in all states (bar SA/NT), but is still weakest in NSW and VIC. Confidence (based on future expectations for prices and rents) kicked up strongly as property professionals brought forward their timings for a recovery. The average survey expectation now is for basically flat national house prices in the next 12 months (reversing expectations for further declines in the last survey). Longer-term prospects are even more optimistic, particularly in NSW and VIC with prices now expected to grow.

Property professionals expect growth in rents to outpace prices, pointing to a further improvement in rental yields. Interestingly, the trend decline in foreign buyers of new property in 2018 and early-2019 reversed, with their market share rising to 7.1% in Q2, led by a sharp jump in VIC (12.1%). While this may be just a blip, AUD weakness, further falls in local prices (particularly in key cities) and recent political unrest in Hong Kong may have reignited some interest. Against a backdrop of falling house prices and interest rate cuts (with the possibility of more to come), the number of local investors in new housing and established markets also bounced, but remain well below survey average levels. NAB’s view is that prices will stabilise in the near term, and remain broadly flat over the next year or so. Previously we had expected further falls of around 5% in Sydney and Melbourne. That expectation is also apparent from our Survey respondents.

It appears that lower rates, fiscal stimulus, the negating of previous tax policy fears and some easing in the macroprudential policys have all helped. As a result the peak to trough in Sydney looks to be around 15% and Melbourne around 11%. That said, we expect conditions in Perth to weaken further, while other capitals are expected to decline slightly. Overall, we still see the macro economy as supportive of prices, with very low interest rates (and a further rate cut by the RBA in late-2019) and moderate levels of unemployment – albeit the latter is forecast to deteriorate marginally over the next few years. Population growth will also help work through upcoming supply.

For further information, please see the NAB Residential Property Survey Q2 2019.