- NAB forecasts that Australian house and apartment prices will fall this year, led by weakness in Sydney.
- House prices are expected to increase or remain flat in all other capital cities.
- It tips apartment prices nationally will fall both this year and next.
Australian capital city home prices have been falling in recent months, according to data from CoreLogic, a performance in stark contrast to that seen for much of the past decade.
Significantly softer market conditions in Sydney and Melbourne largely explains the recent weakness, with prices in Australia’s largest and most expensive cities starting to turn lower after years of rollicking growth.
The National Australia Bank (NAB) thinks those trends will remain in place for some time yet, leading to a slowdown across the broader Australian market.
“NAB’s view for 2018 now has a small fall in house prices in 2018,” says Alan Oster, chief economist at the NAB.
“This is largely related to continuing weakness in the Sydney market and a softer Melbourne market with little improvement now expected during 2018.”
So how large will the losses be in the NAB’s opinion?
Not much, in short.
It’s looking for a drop of 3.4% in Sydney over the year, and just a 0.1% increase in Melbourne, leaving the average decline nationally at 0.8%.
The NAB previously saw national price growth of 0.7% in 2018.
“Looking forward, it is hard to see a near term rebound in Sydney and Melbourne house prices, especially given consumer concerns about the cost of living and high levels of household debt,” Oster says.
“While it is unlikely that the RBA will be increasing rates anytime soon, consumers remain very cautious. We do not expect that cautiousness will abate any time soon.”
Along with ongoing consumer caution, Oster says a reduction in foreign investor activity has contributed to recent price weakness.
“The Melbourne and Sydney house price market no doubt has also been affected by a slowing to a six-year low in foreign investors, albeit there was a small increase in foreign interest in the current quarter,” he says.
And tighter lending restrictions for domestic investors have also played a role.
“Sentiment in New South Wales and Victoria continues to deteriorate in the face of APRA inspired crackdown in investor lending which has also seen growth in investor credit slow to around 2.8% in the year to February,” Oster says.
“As the largest investor market, Sydney house price momentum has slowed dramatically and now is also weakening in Melbourne.”
However, while the NAB is looking for further declines in Sydney house prices, and near-static performance in Melbourne, it says most smaller capital city markets should fare better in comparison, albeit not by much.
“Strong performances in Tasmania and to lesser extent in regional areas, along with higher confidence in the West and Queensland won’t offset the aggregate effects of lower prices in Sydney and Melbourne. Nor will increased first home owner demand fill the gap,” Oster says.
This shows the NAB’s price forecasts for capital city house prices for this year and next.
For apartment markets, the NAB is also forecasting a national decline in prices of 0.8% this year with small declines in Sydney, Brisbane and Perth expected to override small gains elsewhere.
“Apartment forecasts are also broadly unchanged with declines of 0.8% in 2018 and 1.8% in 2019 reflecting large stock additions and softer outlook for foreign demand,” says Oster.
“For 2019, weakness will likely be concentrated on the Eastern seaboard with apartment prices expected to fall in Sydney, Melbourne and Brisbane.”
The NAB’s forecasts are similar to those offered by Australian property experts in the bank’s latest residential property survey for the March quarter.
As seen in the chart below showing the average respondents view, collectively they expect price weakness in New South Wales this year and next with small gains tipped in all other states, including Victoria.
“Property experts are predicting bigger house price falls in New South Wales and have scaled back their outlook for Victoria, but they are much more bullish in Western Australia with stronger growth also expected in Queensland.”
The NAB says around 300 experts took part in the survey, capturing the views of real estate agents, property developers, fund managers and owners.