Source: API - Liz Jordan
HOUSING market sentiment across the country has hit a near six-year high, as Western Australians grew in confidence at a faster rate than anywhere else, and NAB upgraded its forecasts for prices.
The latest NAB Residential Property Survey, housing market sentiment was positive among property professionals in all states for the first time since the first quarter of 2018. It was again highest in Victoria (up 7 to 47) and improved most in New South Wales (up 29 to +31) as house prices rebounded.
In WA, the index recorded its first positive read in almost two years, up 24 points to 16, supported mainly by an improved outlook for rents, but continued to be lowest of all states. Queensland was largely unchanged (30), and sentiment in South Australia/Northern Territory was slightly lower (21).
Consequently, the NAB Residential Property Index rose 16 to 34 after moving into positive territory in Q3 for the first time since mid-2018m and climbed to 54 for the next 12 months (up from 45 forecast in the September quarter), and to 60 in two years' time (up from 56), with both measures now at multi-year highs.
"Overall housing market confidence (based on future expectations for prices and rents) improved, with the survey pointing to a further increase in the number of optimists exceeding pessimists around future price and rental growth," NAB chief economist Alan Oster said.
The outlook for rents in 12 months' time is highest in WA (3.9%), owing to population growth and lower supply. WA has the highest outlook for two year's time (also 3.9%), followed by SA/NT (3.0%). Rental growth is expected to exceed price growth, suggesting yields will increase, potentially boosting investor activity.
NAB revises forecast
NAB expects overall dwelling prices to rise by 4% in 2020 and ease to around 2.5% in 2021. Sydney and Melbourne to continue driving price growth, with modest outcomes forecast in all other capitals.
"NAB's view is that while prices have rebounded more strongly than expected in the second half of 2019, dwelling price growth will slow in an underlying sense in 2020 and 2021 in Sydney and Melbourne," Oster said.
"We expect the key drivers of price growth to continue with a rebound in confidence following the correction in recent years, the impact of low rates continuing to feed through the market and relatively low rates of unemployment and still healthy population growth.
"However, it is likely that the impact of these factors will moderate and the constraints of slow income growth and high debt levels will persist."
NAB has tipped Sydney and Melbourne houses to experience price growth of 7.4%, before halving to 3.7% each in 2021. Next was Hobart (1.8% growth in 2020 and 1.8% in 2021) and Brisbane (1.2% ad 1.2%), while Perth and Adelaide will drop by 2.0% and 0.8%, before improving to 0.0% and 1.2%.
In the units market, Melbourne will lead growth, with the forecast number mirroring those of its houses Sydney (4.9% and 2.4%) and Hobart (1.2% in both years) also rising. Slips are expected in Perth, Brisbane and Adelaide, by 2.6%, 1.3% and 1.2% this year, but each will improve in 2021 (0.0%, 0.6%, 1.2%).
Low interest rates are expected to continue to provide support, as is the low level of unemployment and still healthy population growth in Sydney and Melbourne, however affordability constraints will arise as prices reach their previous peak.
The forecast was less bullish than major rival ANZ's, which was last week revised upwards to 8% from 6% nationally, and scaling up Melbourne from 9% to 12% and Sydney to 10% from 7%.
"Optimism in WA is likely being fuelled by a resurgence in mining sector activity, falling unemployment and population growth," Oster said. Confidence also lifted in SA/NT (up 12 to +65), where major infrastructure projects are expected to boost the economy and jobs. Confidence was lowest in the eastern seaboard states, but at relatively elevated levels. Victoria was down 7 to 59 and Queensland by 5 to 57, while NSW lifted 10 to 57.
Property professionals see national house prices growing 2.2% in the next 12 months, after predicting a rise of 1.3%. Price expectations have not been this high since the first quarter of 2014.
Expectations for rental growth are weaker than that for rents for the first time since the end of 2017, suggesting yields will compress in the future. Rental growth is also expected to accelerate over the next 12 months in in SA/NT and NSW (1.5% vs. 0.2% in Q3), while Victoria and Queensland moderated expectations but remained positive.
First Home Buyers increase share
Oster said that with mortgage rates falling and the new First Home Buyers Loan Deposit Scheme taking effect from January 2020, FHBs dominated sales in new housing markets and increased their market share in established markets," Oster said. FHBs increased their share from 30.2% to a survey-high of 34.1%.
FHB investor also increased their share to 12.7%, while owner occupiers (net of FHBs) accounted for a survey low of 26.0%. Investors made up 19.6%.
Oster said tight credit remains the biggest constraint on new housing development, and access to credit the biggest impediment for buyers of existing property, but property professionals indicated their impact on the market was less severe in the final quarter of 2019. However, it remains the biggest constraint for new housing development in all states, except SA/NT.
Housing construction has been falling for more than a year, and while building approvals have dropped sharply through 2018 and 2019, the rate has stabilised . Still, work in the pipeline is shrinking and the drop in approvals suggests activity will fall until mid-year. The recent ANZ-Property Council of Australia survey showed developers' confidence about the outlook is increasing, thanks to lower interest rates and easier access to credit.
