Led by a steep fall in New South Wales, sentiment towards Australia’s residential property market deteriorated dramatically in the final parts of 2015.
The latest quarterly residential property index from the NAB fell to +1 during the December quarter, a 9 point fall from the level of three months earlier.
The index, now well below its long-run average of +13, now sits at the lowest level seen since mid-2012.
According to the NAB, sentiment weakened in most states, with the steepest declines registered in New South Wales and Queensland.
Victoria, now home to the hottest capital city housing market, registered the strongest levels of sentiment, although it too deteriorated over the quarter.
The table below, supplied by the NAB, reveals the trend in sentiment across the nation.
Akin to the deterioration in the headline index, expectations for house price growth also cooled.
“Average Survey expectations for national house price growth over the next 1-2 years were scaled back in most states,” said Alan Oster, chief economist at the NAB.
“Queensland, is predicted to be the best state for capital growth (1.9% & 2.7%), followed by Victoria (0.7% & 1%). House price growth in NSW in the next 1-2 years is expected to be flat, with weak growth also tipped for SA/NT (-0.6% & 0.2%) and WA (-0.5% & 0.6%).”
On the back of the survey findings, the NAB also lowered its expectations for house price growth nationally, forecasting that prices for detached housing will grow by 1% in 2016, down from 2.3% seen previously.
For the first time in the survey’s history, the NAB also offered forecasts for unit prices. If its predictions come to fruition, it looks set to be a tough time for owners, regardless of location.
Citing huge growth in high density apartment market, the bank forecasts that capital city unit prices will fall by 1.2% in 2016, led by a 0.6% and 3.0% decline in the nation’s two largest housing markets, Sydney and Melbourne.
Only Adelaide, at 0.2%, is forecast to experience capital growth during the year.
Here’s a table with the NAB’s forecasts for house and unit prices in the year ahead.
“Weakening fundamentals have already seen the market starting to cool, suggesting the best of the price gains are probably behind us,” said Oster following the release of the December quarter report.
“Going into 2016, credit restrictions on investors, worsening affordability in Sydney (and to a lesser extent Melbourne) and a large existing pipeline of residential construction, especially in the apartment market, should see average national house price growth slow to just 1%, with weaker expectations in all capital cities, particularly Sydney and Melbourne.”
While the NAB is predicting a sharp deceleration in house price growth, they stopped short of calling for a severe correction in house prices.
“Despite a significant moderation in the housing market, our overall assessment is that the possibility of a more severe correction in the Australian housing market is still remote, although the risks have escalated over the past 6 months,” said Oster.
“Nevertheless, a sharp correction will likely require an external catalyst, triggering a sharp deterioration in the local labour market and/or a wave of Chinese selling. The other possible trigger – a large increase in interest rates – looks highly unlikely in the current environment.”