The NAB Residential Property Index fell in the June quarter but remained at above average levels. The market share of foreign buyers in new Australian housing markets continued to moderate and has now slipped below the survey average. Construction costs and planning permit delays remain the biggest constraints for new housing developments, and interest rates for buyers in established housing markets.

We have revised up our expectations for dwelling prices across the capitals over 2024, with growth slightly stronger than expected over recent months but still expect price growth to slow in 2025. We now see property prices rising by around 7% over 2024, before slowing to 4.1% over 2025. On rates, we see the RBA on hold until May 2025, before cutting by around 100bps over the subsequent year. We see some risk that cuts could come earlier in H1 2025, though that will depend on how quickly inflation continues to moderate as well as the health of the labour market.

Survey highlights

• After seeing upwards movement for several quarters the NAB Residential Property Index fell in Q2 2024. The Index slipped to +46 in Q2, from +57 in Q1. However, the index is still trending well above average (+20).
• The headline result however masks mixed outcomes across states and territories.
• The state index fell everywhere except in SA (+96 from + 67 in Q1) and the NT (+60 from 0). The ACT saw no change (0). Though it fell in all other states and territories, it remained in positive territory and above average levels, except in TAS where the index moved deeper negative (-43 from -20).
• Confidence levels among surveyed property professionals also slipped slightly in the quarter but is still at elevated levels. NAB’s 1-year confidence measure eased to +62 (+68 in Q1), and the 2-year measure to +60 (+67 in Q1). Housing market confidence levels are however still well above long-term survey averages (+38 & +46 respectively) despite persistent challenges facing the market from relatively high interest rates, cost of living pressures and elevated levels of consumer stress.
• Average forecasts for national house prices, as measured in the Q2 survey, were revised down slightly to 2.5% for the next 12 months and 3.2% in 2 years’ time.
• House price growth is expected to be strongest in WA (5.6%), SA (4.8%) and the NT (2.8%) in the next 12 months. They are however also expected to grow in other parts of the country, though more slowly than previously expected, with TAS (0.9%), VIC (1.1%) and the ACT (1.3%) expected to under-perform. Property professionals see house prices growing across the country in 2 years’ time, led by WA (5.5%) and SA/NT (5.1%), with VIC lagging (2.3%).
• The majority of property professionals still believe rental markets in their local areas are undersupplied. Consequently, average survey forecasts for rent growth for the next 1-2 years remain solid at 3.5% and 3.8% respectively. Rents in the next 12 months are forecast to grow in all states, with growth accelerating in VIC, SA, and the ACT, but slowing elsewhere.
• The overall market share of all First Home Buyers (FHBs) in new property markets increased to 33.5% in Q2, but remains below the survey average (38%). The share of sales to owner occupiers (net of FHBs) slipped slightly to 38.5% from an 11-year high 42.2% in Q1, with share of sales to resident domestic investors relatively unchanged at 17.7%, but ranging from 22.5% in SA to 13.3% in VIC in Q2.
• Around 3 in 4 property professionals (76%) across the country identified construction costs as a significant barrier to starting new housing projects in Q2, and was particularly prominent in NSW (82%) and VIC (79%). Delays in obtaining planning permits was next, followed by labour availability. With no further rate rises in Q2, and policy rates still in restrictive territory a basically unchanged number of property professionals said interest rates were a key barrier (40% up from 39%).
• In established housing markets, buying activity continued to be dominated by owner occupiers (net of FHBs) in Q2, with their overall market share largely unchanged at 44.2%, and still slightly above average (43.5%). The share of local investors in this market picked up slightly to 17.5% but remained below average. An unchanged 1 in 3 buyers in this market segment were FHBs (33.2%), with most buying for owner occupation (25.8%).
• Rising interest rates were again identified as the biggest constraint for buyers in established housing markets nationally. Though it was considered the biggest constraint for home buyers in NSW and VIC, lack of stock was the biggest barrier for buyers in WA, QLD and SA. Price levels were also playing a bigger role, particularly in NSW and SA, with access to credit more problematic for established home buyers in NSW and VIC.
• The market share of foreign buyers in new Australian housing markets continued to moderate in Q2 to 8.9% (10.0% in Q1). It has now also slipped below the survey average (9.1%), and is currently around half the levels seen during the peak of the foreign housing investment boom seen in late-2014/early-2015.
• The decline was driven by falls in all key states except NSW, which remained the preferred choice for foreign buyers with a 15.0% market share (12.0% in Q1) and trending well above average (8.7%). Foreign buyer market share fell in all other states and was lowest in QLD (4.8% down from 7.6%), followed by VIC (7.4% down from 10.0%), and WA (7.5% down from 11.0%).
• In established housing markets, the share of foreign buyers inched down to 3.7% in Q2 (3.8% in Q1), and was well below the survey average (5.1%). Market share increased in VIC (5.1% from 3.8%) and WA (3.9% up from 2.2%), and fell in QLD (2.0% down from 4.0%) and NSW (3.3% down from 4.5%). The market share of foreign buyers in this market however remains below the survey average in all states.

NAB’s view

We have revised up our expectations for property prices in 2024, now expecting capital city dwelling prices to end the year around 7% higher. We still expect price growth to slow somewhat in 2025 to around 4%. We continue to see very strong demand for housing continuing to outpace new supply, with completions likely to continue trending lower in the near term as the pipeline of new construction is worked through. In the near-term we expect the current regional pattern of growth to continue, with the Perth, Brisbane and Adelaide continuing to grow more strongly than Sydney and Melbourne. The rental market will also continue to be pressured by the demand/supply imbalance with vacancy rates still low – and therefore rents growth, while having slowed slightly, will remain strong in the near term.

More broadly, we continue to see a relatively soft landing for the economy. While growth is expected to remain below trend over 2024, it is expected to rise to around 2.3% over 2025. That will see the unemployment rate continue to edge up, reaching around 4.5% by end 2024 – a notable increase from its 3.5% low, but ultimately it is expected to stay below pre-COVID levels. Inflation will also continue to ease, though more gradually – falling to around 3.5% by end 2024 in underlying terms and into the top half of the RBA’s target band by end 2025. For rates, we continue to see the RBA on hold until May 2025 (though see the risk skewed to an earlier cut) before the RBA eases back to around 3.0% over the subsequent year.