NAB Quarterly Australian Property Survey Q3 2023

NAB Quarterly Australian Property Survey Q3 2023

The NAB Residential Property Index maintained its upward momentum in Q3 as home prices continued to recover across most of the country, and national rents continued to grow amid very tight rental availability. Expectations for a housing market recovery over the next few years have also strengthened, with confidence levels among surveyed property professionals rising to their highest levels in around 2 years. NAB’s latest survey results also suggest foreign buyers have been playing an increasingly bigger role in Australian housing markets in recent quarters.

NAB has revised up its outlook for property prices which continue to be supported by a significant supply-demand imbalance amidst rising rates and reduced borrowing power. Strong population growth and a healthy labour market are expected to persist in the near term as the RBA reaches the peak for rates, before eventually beginning to cut rates in H2 2024.

 

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Survey highlights

  • The NAB Residential Property Index maintained its upward momentum in Q3 as home prices continued to recover across most of the country, and national rents continued to grow at above average levels amid historically low vacancy. Overall, the Index climbed for the third straight quarter to +40 pts (+33 pts in the previous quarter and +9 pts at the same time last year) and well above the survey average (+18 pts).
  • Housing market sentiment continued to diverge across the country. It slipped deeper into negative territory in TAS (-50 pts) and remained negative in the ACT (-31 pts). It lifted in VIC (+31 pts), NSW (+32 pts), QLD (+42 pts) and the NT (+75 pts), but softened in WA (+77 pts) and SA (+50 pts) – though both states continued to out-perform the national average.
  • Expectations for a housing market recovery over the next few years strengthened, with confidence levels among surveyed property professionals rising to their highest levels in around 2 years. NAB’s one-year confidence measure lifted to +50 pts in Q3, with the 2-year measure at +54 pts. Property professionals operating in WA and the NT are the most confident, and in the ACT and TAS the least confident.
  • With the August CoreLogic house price data pointing to an entrenched recovery in the Australian housing market, survey forecasts for national house prices have also been revised up. Property professionals on average now see national home values rising 1.5% in the next 12 months and 2.4% in 2 years’ time. Expectations for house price growth over the next 1-2 years are strongest in WA and the NT.
  • CoreLogic data also suggests the pace of rental growth is losing momentum in most parts of the country, but still growing almost three times faster than the decade average. Against this backdrop, the average survey forecast for rents in the next 12 months and in 2 years’ time eased slightly to a still healthy 3.0% in Q3 (with 4.0% forecast for both periods in the Q2 survey), with rents to continue growing across most of the country.
  • Property professionals are still reporting very tight supply conditions in housing rental markets in Q3, with a net 79% assessing the balance between supply and demand in housing rental markets in their area as undersupplied (83% in Q2). Property professionals also indicated rental markets were undersupplied in all states, ranging from 97% in WA to 63% in NSW in Q3.
  • The overall market share of First Home Buyers (FHBs) in new housing markets fell to a near 8-year low 30.3% in Q3, with a fall also in the number of FHB owner occupiers (20.9%) and investors (9.4%). The market share of sales to resident owner occupiers (net of FHBs) however continued to grow in Q3, reaching a near 11-year high 41.8%. Domestic investors also played a bigger role, with their market share increasing to 16.5% – though still well below levels seen prior the start of the current interest rate cycle.
  • Construction costs continued to be viewed as a barrier to starting new residential development projects by most property professionals – around 8 in 10 (78%), with rising interest rates (55%) and delays in obtaining planning permits (46%) the next most common impediments, according to around 1 in 2 survey participants.
  • Buying activity in established housing markets is still being dominated by owner-occupiers (net of FHBs), with their market share unchanged at a below average 45.8% in Q3. The overall market share of FHBs also fell to a below average 31.0% in Q3, with the share of FHB owner occupiers dipping to 23.5% and investors to a survey low 7.5%. The market share of local investors however inched up to 17.9% but remains well below average.
  • Rising interest rates continues to be identified as the biggest constraint for buyers of existing property nationally in Q3 – though weighing a little less heavily on buyers than in Q2. Lack of stock is now seen as the next biggest hurdle for buyers overall, particularly in WA. Access to credit and price levels were next and assessed as a “significant” impediment for buyers in all states (bar WA). Employment security and returns from other investments continue to have the least influence on home buyers, with their impact considered only “somewhat significant” in all states.
  • NAB’s latest survey results also suggest foreign buyers have been playing an increasingly important role in Australian housing markets in recent quarters.
  • Property professionals estimate the share of total market sales to foreign buyers in new housing markets increased for the fourth straight quarter to a 5½-year high 10.1% in Q3 and lifted above the survey average for the first time since mid-2018. This was mainly due to noticeably higher activity levels in NSW, where market sales increased to 14.9% (9.2% in Q2) and VIC where it also lifted to 11.3% (7.4% in Q2). In established housing markets, the share of foreign buyers rose to a 4-year high 4.1% in Q3 and increased in all states led by VIC (5.0%).

NAB’s view

We have revised up our expectation dwelling prices in the near-term, and after accounting for stronger than expected outcomes over the past three months, now see capital city dwelling prices finishing the year around 8% higher. We continue to see prices rising a further 5% in 2024 with ongoing strength in housing demand relative to supply outweighing the impact of the ongoing passthrough of higher rates.
On rates, we continue to expect the RBA to lift rates to 4.35% at the November meeting with the likely upside in the Q3 CPI a key driver. From there we continue to see rates on hold for an extended period before the RBA begins to ease rates back towards neutral in H2 2024. More broadly, we expect the impact of higher rates and inflation to continue to see sluggish growth in consumer demand and below trend growth to see some easing labour market pressures and for inflation to continue to moderate back towards the RBA’s target band over the next year or so.