Outlook strengthens for house prices and rents, finds NAB

While current property sentiment among property professionals remains negative, future expectations are for improved rental yields and price growth, new research from NAB has found.

On Wednesday (17 July), the major bank released the NAB Residential Property Survey Q2 2019, which surveyed more than 350 panellists from across the property industry about their thoughts on the current market and forecasts for the future.

It found that the average survey expectation for national house prices for the next 12 months is for a further decline, but on a much smaller scale than previously predicted.

On average, property professionals now see national house prices falling just -0.2 per cent over the next year, down from -2.2 per cent forecast in the previous quarter.

While current market sentiment among property professionals was found to still be negative (with the index coming in at -8), the figure was a 7 point increase on the prior quarter – and marked a 12-month high for the index.

Sentiment improved in all states except SA/NT, where the index dropped from 32 in the first quarter of 2019 to -18 in the quarter ending June 2019. Overall, sentiment is still weakest in NSW (up 9 points to -27) and Vic (up 13 points to -8).

The NAB economists noted, however, that confidence (based on future expectations for prices and rents) ticked up strongly.

Confidence among property professionals over the next 12 months improved in all states except SA/NT and is now positive for all states.

Confidence is highest in WA (up 25 to +48 points) and Qld (up 37 to +42 points), where expectations for house prices are also strongest.

Confidence levels remain weakest in NSW (up 31 to +5 points) but turned positive for the first time since Q1 2018

While the previous survey showed that the average survey respondent expected there to be further house price declines in the next 12 months, the expectation is now for house prices to remain flat in the next year.

House prices and rents expected to grow over next two years

Moreover, longer-term confidence is much more optimistic, with the average survey expectation now forecasting house prices to grow by 1.1 per cent in two years’ time (-1.2 per cent in the last survey).

WA is still expected to lead the country for house price growth in two years’ time at 2.1 per cent, followed by Qld at 1.8 per cent.

Sentiment in NSW and Vic has also turned sharply, with property professionals in NSW now expecting prices to grow 0.6 per cent (up from -2.2 per cent in Q1), and those in VIC also predicting a 0.6 per cent rise (-2.4 per cent in Q1).

House prices expectations for SA/NT were unchanged at 0.6 per cent.

Rents

Property professionals also largely said they expect growth in rents to outpace prices, given further improvement in rental yields.

In fact, confidence improved most in Vic (up 38 to +25 points), mainly driven by a strong outlook for rents, which are expected to grow by 1.9 per cent in this state.

Rents are also expected to rise quickly in Qld (by 1.9 per cent) and in WA (1.5 per cent) – up from 0.8 per cent last quarter.

Property professionals, on average, said they expect modest rental growth in SA/NT (0.1 per cent) and for rents to remain flat in NSW.

The average survey outlook for national rental growth in two years’ time was also revised up to 2.2 per cent.

Overall, the market confidence index is expected to climb to +45 points in the next two years – markedly up from the last index when the index was forecast to +21 points more over this period.

The NAB quarterly report also highlighted that new developments included a rebound of foreign buyers.

The report reads: “Interestingly, the trend decline in foreign buyers of new property in 2018 and early 2019 reversed, with their market share rising to 7.1 per cent in Q2, led by a sharp jump in Vic (12.1 per cent).

“While this may be just a blip, AUD weakness, further falls in local prices (particularly in key cities) and recent political unrest in Hong Kong may have reignited some interest.

“Against a backdrop of falling house prices and interest rate cuts (with the possibility of more to come), the number of local investors in new housing and established markets also bounced but remain well below survey average levels.

“NAB’s view is that prices will stabilise in the near term and remain broadly flat over the next year or so. Previously, we had expected further falls of around 5 per cent in Sydney and Melbourne,” the report concluded.

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