Amid slowing house prices and rents, the NAB Residential Property Index fell for the second straight quarter in September. Outcomes however were mixed across the country, with SA still leading the way and TAS trailing. The market share of First Home Buyers (FHBs) fell further in both new and established home markets. A growing number of property professionals highlighted construction costs as the main constraint for new housing developments in Australia, with interest rates still the main barrier for buyers in established home markets, despite growing market expectations for rate cuts to be brought forward.

NAB’s outlook for property prices is broadly unchanged. We see the 8-capital city dwelling price index ending the year around 6% higher and for growth to slow slightly to 4% over 2025. On rates, we see the RBA on hold until February 2025, before cutting by around 125bps to 3.1% by early-2026. We see some risk that cuts could come later in H1 2025, though that will depend on whether the labour market remains resilient and how quickly inflation moderates.

Survey highlights

• With capital city house prices and rents growth continuing to slow in annual terms across both the CoreLogic and PropTrack measures, the NAB Residential Property Index fell in the September quarter. Overall, the Index fell for the second straight quarter to +34 index points from +46 in Q2. It was also lower than at the same time last year (+40) but continued to trend above the survey average (+20).
• Outcomes were mixed across the country but was positive in all states and territories except TAS (-28). Market sentiment remained highest in SA (down 6 to +90) and fell most in VIC (down 26 to +10). Sentiment eased in NSW (down 13 to +18), QLD (down 5 to +61) and WA (down 8 to +64) but was higher in the ACT (up 14 to +14) and NT (up 7 to +67).
• Confidence levels among surveyed property professionals also slipped further in the September quarter with the one-year measure easing to +47 index pts (+62 in Q2) and the 2 year measure to +55 (+60 in Q2). Both measures however are still well above long-term averages (+35 in 12 months and +46 in 2 years’ time) suggesting market activity will remain relatively robust. Confidence levels printed positive across the country, ranging from +85 in SA to +22 in TAS over the next 12 months, and from +86 in the ACT to +33 in the NT in 2 years’ time.
• Average survey expectations for house price growth were scaled back further to 1.8% for the next 12 months and 2.7% in 2 years’ time. Expectations for the next 12 months were scaled back across most of the country except WA (5.8%) where they are highest overall, and in TAS (1.6%). Property professionals on average expect house prices to grow across most of the country in the next 12 months except VIC (-0.5%) and the NT (-0.4%). The outlook in 2 years’ time is positive in all states and territories ranging from 4.9% in WA to 1.4% in VIC and the NT.
• Rents growth has slowed sharply over the past 3 months despite only a modest uptick in rental vacancy rates. And in the September quarter, far fewer survey respondents overall (-68% in net terms) assessed rental markets in their area as undersupplied, particularly in NSW (-47%) and VIC (-67%). Against this, average survey forecasts for national rents in the next 12 months and 2 years’ time were pared back to 2.3% and 2.6% respectively. Expectations for the next year are mixed – ranging from 3.9% in the NT to just 0.4% in TAS. They lifted noticeably in the ACT (3.1%) but were scaled back significantly in VIC (2.8%), QLD (2.0%), WA (2.7%) and NSW (1.8%). Rents are forecast to grow in all states in 2 years’ time, ranging from 4.4% in the ACT to 1.5% in WA.
• The market share of FHBs in new housing markets fell to a well below average 29.9% in Q3, with both FHB owner occupiers (21.0%) and investors (8.9%) less prominent in this market. Sales to owner occupiers (net of FHBs) climbed to a 13-year high 44.3%, with sales to owner occupiers higher than FHBs in all main states. The market share of local investors edged down to a below average 17.0%, with the share of sales to foreign buyers also dipping to a near 2-year low 6.8%.
• A higher 83% of all property professionals said construction costs were a key barrier to starting new housing projects in Q3, and was most problematic in QLD (90%), NSW (87%) and VIC (83%). The next biggest hurdles were delays in obtaining planning permits (though lower at 46%) and labour availability (basically unchanged at 41%). Delays in obtaining planning permits were highlighted as a key issue by noticeably more property professionals in NSW (67%) and labour availability in QLD (60%). A lack of development sites was a concern for twice as many property professionals in WA (50%) than in other states.
• In established home markets, buying activity continued to be dominated by owner occupiers (net of FHBs) in Q3 with an overall market share of 43.6% – with these buyers also accounting for the lion’s share of established home sales in all states. Just over 1 in 3 (34.3%) buyers were FHBs (both owner occupiers and investors), though it was somewhat higher in VIC (40.5%). Local investors were less prominent in established housing markets in Q3 (17.0%), but property professionals reported an incremental increase in the share of foreign buyers in this market (3.9%).
• Despite rising market expectations for rate cuts to be brought forward, interest rates are still considered the biggest barrier for buyers of established homes, followed by house price levels, access to credit and lack of stock. Interest rates are the biggest impediment to buying established homes in VIC and NSW, but lack of stock in WA and QLD.
• The market share of foreign buyers in new Australian housing markets fell for the third straight quarter to a well below average 6.8% (8.9% in Q2). It fell in all states except QLD (5.0%), with NSW the only state still reporting above average levels of foreign buyer activity (9.4%). In established housing markets, the market share of foreign buyers inched up to 3.9% (3.7% in Q2) but is still well below average survey levels (5.1%). Market share grew in NSW (4.5%) and QLD (3.5%) but was lower in VIC (4.6%) and WA (3.2%), with activity below average in all states bar NSW.

NAB’s view

We have slightly revised down our forecasts for property prices over 2024 with recent monthly prints coming in slightly softer than expected.
We expect broadly similar growth over 2025 to what we forecast in the Q2 Residential Property Survey – namely a softer but still positive rate of
growth following the strong growth in prices over recent years. Though price growth has slowed somewhat, underlying demand for property
remains strong with the population expected to remain elevated in the near-term. On the supply side, despite the rise in completions in Q2
and a stabilisation in new approvals it is unlikely we will see a significant rebalancing in the property market in the near-term.
More broadly, we continue to see a relatively soft landing for the economy. While growth has slowed, driven by softness in the private sector,
we expect H2 2024 to be the low point, with growth returning to around trend over 2025. The labour market has been resilient and while we
expect the unemployment rate to rise gradually to around 4.5%, it is expected to remain below pre-COVID levels. For the RBA, both the pace of
the ongoing moderation in inflation and resilience in the labour market remain important.