Property prices to rise just 2.4% over next two years as sentiment weakens: NAB survey

House prices are forecast to rise just 1.4% in the next year and 2.4% in the next two years, according to the expectations of around 300 property market participants surveyed as part of the June quarter NAB Residential Property Survey.

The strongest expectations are for Western Australia (3.3% over next two years) followed by South Australia/NT (2.6%), Victoria (2.5%) and NSW (2.4%).

Queensland is forecast to be the weakest mainland state with just 1.7% house price growth over the next two years.

Source: NAB

Weaker expectations about house price growth come despite improved affordability and lower interest rates, but amidst weaker overall sentiment about the property market.

The quarterly survey of 300 people (with a high proportion of estate agents, property owners and developers) recorded a 20 point drop in the overall NAB Residential Property Index from 35 to 15, following a rise of 27 points in the first quarter of the year.

It follows the July Westpac-Melbourne Institute consumer sentiment index, released yesterday, which also recorded a sharp decline in home buying sentiment.

In line with a stronger outlook on house prices, sentiment is highest in WA with a reading of 42, though this fell 29 points over the quarter.

Sentiment is weakest in South Australia/NT (-9 points) and Queensland (4 points).

“Longer-term confidence has also been undermined by the softening economy and the downside risks being posed by the economy’s structural adjustment,” says NAB chief economist Alan Oster.

“NAB’s own view of Australian house prices (based on its modelling) is slightly more optimistic than the average survey forecast.

“NAB sees capital city house prices rising by 3.1% in the year through to June 2014 and by 2.5% in the year through to June 2015,” he says.

“House price growth will however vary with Perth (5.1%), Sydney (4.1%) and Brisbane (3%) leading the way in 2014.

“Capital gains will be slowest in Melbourne (1.5%) and Adelaide (1%) reflecting excess supply in these locations and subdued state economic conditions.

“State variance will persist into 2015 with slower growth forecast in Perth (3.1%) as resource activity moderates, unemployment rises as population growth eases.

“Sydney (3.6%) will out-perform the national average underpinned by supply shortages and improved affordability.

“In Brisbane, house prices are expected to rise by 3.4%.

“In Melbourne (1.6%) and Adelaide (1.1%), price growth will continue to be constrained by excess supply.”