Sentiment towards Australia’s housing market ebbed during the September quarter with the NAB’s residential property index sliding 7 points to +10. The reading, the second consecutive fall, left the index below its long-term average of +14.
The NAB note that a sharply improved reading towards the outlook for Queensland’s property market, and less negative readings for South Australia and the Northern Territory, were able to partially mitigate softness in other states and territories, particularly in Western Australia which saw sentiment collapse to the lowest level on record.
The respective changes in sentiment towards the housing market are revealed in the chart below. Note the softening in New South Wales and Victoria – albeit from elevated levels – along with the incredibly ugly -61 level for Western Australia.
Reflective of the softening outlook towards the housing market, the NAB noted that expected house price growth over the next one to two years was also scaled back to 1.5% and 1.8% respectively. Respondents in Queensland expect the largest house price gains – both in 2016 and 2017 – while those in Western Australia indicated that they expect house prices to continue to fall.
Fitting with the softening in the headline property index, NAB chief economist Alan Oster believes that recent house price gains – particularly in Sydney and Melbourne – are unlikely to continue.
“In an environment where income growth continues to be modest, these rates of growth are unlikely to continue, suggesting price growth will slow in 2016,”said Oster.
“Additionally, regulatory changes to address perceived risks in housing credit (particularly investor credit) are likely to have at least some impact on housing demand.”
As a result of the survey results, the NAB has lowered its expectation for national house price growth from 3% to 2.3%. They also expect prices for houses to outperform units as a result of the strong supply response for the latter seen along Australia’s eastern seaboard.
“In 2016, the slowdown in average national house price growth to 2.3% is largely driven by a moderation in both Sydney and Melbourne prices growth. NAB Economics expects house price growth to decelerate in Sydney to 1.2%, while price growth in Melbourne will ease to 3%. Brisbane is tipped to see the fastest house price growth (4.5%), and the Adelaide market is expected to improve (2.4%). Perth will remain weak, although price declines are forecast to ease (-1.2%),” they wrote.
The findings of the NAB survey are similar to those in the separate Westpac-MI consumer sentiment survey where respondents have been growing increasingly pessimistic towards the outlook for the housing market, particularly in New South Wales.
Echoing the NAB’s view that house prices are likely to outperform those for units, the RBA recently warned in its latest quarterly financial stability report that the risk of a supply glut in high density units in inner city Melbourne and Brisbane was growing, warning that this could pressure unit prices in these areas.