Sentiment in the Australian housing market has dropped significantly in the June quarter on the back of cooling price growth expectations.
The
National Australia Bank (NAB) Residential Property Index fell by 17 points to +14 in the June quarter after climbing to a three year high the quarter before. The Index is now at its lowest level since mid-2016.
The Index is a relative measure which is a combination of rent and house price growth expectations, NAB group chief economist
Alan Oster told
Australian Broker.
“The simplest way to look at this recent movement is to say that it was a significant softening. The drop wasn’t catastrophic but it has softened.”
Sentiment fell in all states with both South Australia and Northern Territory in the lead. Even in Victoria and New South Wales – the most upbeat states – sentiment was also lower. Modest falls in Queensland and Western Australia also mean the gap between best and worst states has narrowed.
The Index is also expected to rise to +23 next year and to +35 in two years’ time – down from +38 and +40 respectively in NAB’s last quarterly index.
| |
Q1 2017 |
Q2 2017 |
Next 1 Year |
Next 2 Years |
| Australia |
31 |
14 |
23 |
35 |
| Victoria |
58 |
36 |
44 |
53 |
| NSW |
58 |
36 |
38 |
38 |
| Queensland |
13 |
12 |
22 |
36 |
| SA/NT |
42 |
-6 |
-6 |
17 |
| WA |
-43 |
-46 |
-24 |
19 |
Looking at house prices, national expectations fell to 0.6% in the upcoming year (from 1.8%) and 1.0% in two years’ time (from 2.0%).
“Property experts lowered their expectations in all states, except WA, with the biggest cut backs in Victoria and to a lesser extent in Queensland and NSW,” said Oster.
Both Queensland and New South Wales are expected to experience the greatest levels of house price growth in the coming 12 months. In two years’ time however, Western Australia is predicted to bounce back with Victoria trailing behind.
NAB’s survey results show an increase in activity for first home buyers in new and established property markets while investment activity is on the retreat.
“Clearly, tougher measures on banks announced by regulators to rein in investor lending are being felt in this segment of the market,” said Oster.
The share of foreign buyers in new property markets increase to 11.6% in the second quarter – up from 10.8% in the quarter beforehand. This was driven largely by Victoria which accounted for 20.8% of all new property sales by foreigners.
“Foreign buyers continued to play a role in Australian housing markets in the June quarter despite China’s crackdown on capital outflows into overseas property and a raft of new restrictions and taxes on foreign ownership introduced in the 2017/18 federal budget,” said Oster.
Looking forwards, Australia’s property market appears to be entering a cooling stage, he added.
“Our expectations around subdued wages growth remain suggesting affordability will be a major constraint on the market, especially if credit conditions continue to tighten. This along with record levels of housing construction activity (mainly apartments) and moves to limit foreign demand for housing will likely limit the potential for future price gains.”
However, he said there were still a number of positive qualities in the market which increased the likelihood of an ordered adjustment rather than a sharp correction.
“Interest rates are still quite low, despite recent increases, and pent-up demand for housing remains quite large in some markets, especially Sydney and Melbourne.”
NAB also forecast growth in the capital cities for both houses and apartments for the next two years as follows:
| |
Houses |
Apartments |
| |
2017 |
2018 |
2017 |
2018 |
| Sydney |
6.7% |
4.9% |
6.4% |
0.5% |
| Melbourne |
7.5% |
5.5% |
-2.6% |
-2.4% |
| Brisbane |
1.3% |
1.9% |
-2.2% |
-1.8% |
| Adelaide |
2.2% |
1.7% |
-1.9% |
0.5% |
| Perth |
-2.5% |
0.7% |
-3.6% |
0.7% |
| Hobart |
4.7% |
1.7% |
4.0% |
0.6% |
| Capital City Average |
5.0% |
4.3% |
3.0% |
-0.3% |
About 260 property professionals participated in NAB’s Q2 2017 survey.
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