Growth, inflation and labour market all easing
Despite ongoing economic challenges, the NAB Residential Property Index ended 2020 at a survey high +45 points.
In this podcast, NAB Chief Economist, Alan Oster gives you a 10 minute summary of the latest economic news together with the results of our Q4 Australian Residential Property Survey.
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Despite ongoing economic challenges, housing market sentiment ended the year at a survey high. Confidence also lifted across the country amid sharp upward revisions to expectations for house price growth and rents. NAB also sees house prices rising at a solid clip, with capital city house prices to rise around 8% in 2021 and 6% in 2022. Lower rates will be a key driver of prices, but some risk of a weaker labour market and population growth remain.
Despite ongoing economic challenges, the NAB Residential Property Index ended 2020 at a survey high +45 points. Improvement was underpinned by solid house price growth during Q4 as rental markets were relatively soft. Sentiment lifted and was positive in all states, although VIC continues to trail by a large margin. Confidence levels also returned to levels last seen before COVID in late-2019 as expectations lifted sharply for house price growth across the country (led by WA and SA). The outlook for rents also improved (led by WA and the NT). FHB demand remains very strong in new and established housing markets and is likely being supported by historically low interest rates and government support such as the First Home Loan Deposit Scheme and HomeBuilder. The brief pullback in house prices earlier in the year may have also helped sentiment among these buyers.
The housing market has fared significantly better than expected over the past year, despite significant headwinds from slower population growth and a weaker labour market. Lower interest rates and household income support from the Federal Government have been a key support amidst the challenges of the pandemic. With the full impact of lower rates still to play out and the outlook improving, we have increased our forecast for dwelling price growth to around 8% in 2021 and continue to expect a further solid rise of around 6% in 2022. While the impact of lower rates is broad-based, there are some key dynamics underlying our forecast. We expect price growth in the smaller capitals to continue to outpace Sydney and Melbourne which will likely be impacted most by a slowing in population growth – particularly in the apartment market. Overall, we see house price growth at around 10% – slightly stronger than units.
For further details please see NAB Residential Property Survey (Q4 2020)
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