Housing market sentiment eases from record highs and confidence ticks down further as house prices start to slow. Construction costs now seen as the biggest constraint on new housing developments in the country, and lack of stock for buyers of established property. NAB has revised its dwelling price forecast – 23% in 2021 & 5% in 2022 – as impact of low rates and strong income support begin to fade.

Survey highlights

The NAB Residential Property Index dipped to +60 pts in Q3 from a survey high +71 pts in Q2. With market data showing house prices slowing, sales easing, and building approvals falling, the survey is also pointing to a market that has passed its peak. Sentiment softened in most parts of the country (and still lowest in VIC), and confidence fell again (but still above average). With the survey expectation for house prices in the next 12 months to outpace rents, gross yields should fall before leveling out in 2 years’ time as prices and rents rise at a similar pace – though based on survey forecasts some states (WA, the NT and ACT) may see yields rise. With strong building demand and shortages of materials reportedly causing building costs to rise strongly, construction costs surpassed a lack of development sites as the biggest impediment for new housing development. In established markets, property professionals identified a lack of stock as the biggest constraint facing buyers (and in all states). The survey also found that though foreign buyers are still bit players in local housing markets, a significant net number of property professionals now expect their market share to rise in the next 12 months, especially in new residential markets.

NAB’s view

We have slightly revised up our forecast for dwelling prices in 2021 based on stronger than expected outcomes in recent months as well as small upgrade to our expectations for Q4 and early-2022. Overall, that sees a very strong print for house prices in 2021 but a sharp slowing in 2022 as the impact of lower interest rates fades and affordability constraints begin to bind. Our outlook is generally similar across states, but the relative performance in the year to date sees Sydney and Hobart print very strong outcomes, with Melbourne and Perth seeing softer (but still strong) outcomes. Overall, the property market held up remarkably well despite the disruptions to the economy with strong support provided by policy makers and little labour market fallout through the pandemic.

Get all the insights in the NAB Residential Property Survey (Q3 2021)