Australia’s property market has recovered slightly, but remains below where it was a year ago, a new report shows.
NAB’s Quarterly Australian Residential Property Survey Q1 2023 also reveals that first home buyers appear to have pulled back in new housing markets, while foreign buyers are beginning to re-emerge as key players.
NAB sees a further small drop in property prices in the near term, before another rise in 2024 as rates fall. Rates are likely to continue to weigh, though strong population growth, a tight rental market and healthy labour market are key offsets.
Housing market sentiment is currently highest in the Northern Territory (+67 pts), Western Australia (+51 pts) and South Australia (+41 pts). In Victoria, sentiment turned positive (+5 pts) after falling in the previous 2 quarters, with the Queensland state index steady (+6 pts). In NSW, where housing values have fallen most in the past year, it moved deeper negative (-7 pts).
According to NAB Group Economics, confidence levels improved a little in the first months of 2023, but continue to point to a relatively slow housing market recovery over the next few years. NAB’s one-year confidence measure lifted modestly to a well below average +15 pts, with the 2-year measure also still well below average +33 pts.
The average survey forecast for national house prices in the next 12 months is broadly unchanged at -2.3%. Longer-term expectations are also largely unchanged at -0.3%. Expectations for the next 12 months are highest in the Northern Territory (1.5%) and WA (1.2%), with house prices falling across the rest of the country, led by Victoria (-3.6%), the ACT (-3.3%) and NSW (-3.2%).
With Australia still experiencing a period of very low rental vacancy and high demand, rental expectations remain elevated and well above survey average levels. The average survey forecast is for national rents to grow 4.0% next year and in two years’ time. With rental growth continuing to outpace dwelling values, gross rental yields should also continue to rise. Expectations for the next year are positive in all states, led by WA (4.7%), the NT (4.6%), Victoria (4.5%), South Australia (4.3%) and NSW (4.2%).
First home buyers (FHBs) pulled back in new property markets during the quarter, with their share of total sales dipping to a near 6-year low 35.7%. This was attributed to a sharp fall in the market share of FHB owner occupiers to a 5½ year low 23.7%.
On the other hand, the overall market share of foreign buyers in new property markets however rose to 7.9%, underpinned by a steep increase in NSW to 16.2% – the highest reading since Q1 2015. The share of foreign buyers in Victoria, however, fell to a 2-year low 4.0%.
Construction costs are still being highlighted as the biggest constraint for new housing development in Australia, and considered to be a ‘very’ significant constraint. Interest rates are also now viewed as a significant constraint nationally.
The report shows that in established housing markets, buying activity continued to be dominated by owner-occupiers (net of FHBs), accounting for 46.1% of all sales. The overall share of FHBs in established housing markets slipped to 31.9%, but continues to trend slightly above the survey average.
NAB’s view is that house prices see a further small fall from here, around 3.5%, and then a period of flat prices which will see prices end the year around 4% lower. This would be a peak-to-trough decline of around 12% compared with our previous expectation of a decline of around 20%.
The key driver of the decline to date in dwelling prices has been the very big reduction in borrowing power as rates have risen. However, stronger population growth, a tight rental market and strong labour market are key offsets.
“More broadly, we see the economy slowing from here, as the impact of higher rates and inflation weigh on household consumption. This will see a deterioration in the unemployment rate, albeit from a very low base, and ultimately see wage growth remain consistent with ‘at target’ inflation.
“Therefore, with global factors continuing to wane, inflation will continue to moderate and the RBA is likely to remain on hold after pausing its sequence of cash rate increases in April at 3.6%”, the report concludes.
