Housing market sentiment falls as house price growth slows and rental pressures continue to weaken. Local investors step up and foreign buyers less prevalent.

• NAB Residential Property Index falls in Q2 to its lowest print since mid-2013. With capital and income growth slowing the index fell -17 to 19 points in Q2.
• Sentiment down in all states (especially WA). VIC overtakes NSW as current best performing state with WA now clearly weakest. VIC and QLD most confident over next 1-2 years, with WA and SA/NT least optimistic.
• The outlook for prices scaled back across the board. Growth tipped to be fastest in QLD (2.3%) and VIC (2.1%) next year, slowest in WA (0.2%). QLD (3.1%) and VIC (2.4%) strongest for capital gains in 2 years time. WA (0.9%) and SA/NT (1.7%) weakest.
• NAB’s analysis also suggests average capital city house prices will cool further. Brisbane, Sydney and Perth to lead the market next year, with Melbourne and Adelaide lagging.
• Rental pressures weaken across the country. Rental growth slowed in VIC (0.7%) and NSW (0.5%), but they remain the strongest states for income returns. In contrast, sagging house prices and rising vacancies continue to impact rents in WA (-2%).
• Lower returns forecast in all states in next 1-2 years. NSW (1.7% & 2.4%) and QLD (1.8% & 2%) expected to provide the best income returns over the next 1-2 years; WA the worst (-1.1 & -0.2%).
• Local investors much more active in the local property market. Local investors much more active in new housing market in Q2 accounting for nearly 1 in 3 of all new property sales. Local investors also continue to play a key role in the established market (25% of all buyers).
• Nationally, foreign buyers were less prevalent in both new & established property markets. The overall share of foreign buyers in established property Australia-wide fell from 13.9% in Q1 to 10.2% in Q2 (lowest in 2 years). In the new property market, it fell to 7.2% from a high of 9.5% in Q1.
• VIC bucks the trend with a strong pick up in foreign demand for new property. Foreign buyers reached a new a high of 17% in VIC (around 1 in 6 new properties). Conversely demand pulled back sharply in QLD and was flat in NSW.
• Housing affordability (new property) and employment security (established property) the biggest concerns for buyers. Housing affordability has replaced credit availability as the key concern for buyers of new property. Employment security is still the biggest impediment in the established market in most states (especially SA/NT). NSW is the exception, with house prices and lack of stock the biggest obstacles.

For further analysis download the full report.

• Quarterly Australian Residential Property Survey – Q2 2014 (PDF, 176KB)