False dawn for NSW housing price recovery but mining state sentiment improves: NAB June residential property survey

Expectations that the NSW housing market might be on the road to recovery have been quashed in the latest NAB Australian Residential Property Survey. 

NSW house prices are expected to fall by 0.4% over the next two years, according to the June survey of more than 300 property market participants. 

This compares with an expectation just three months ago in the March NAB Australian Residential Property Survey that NSW house prices would rise modestly by 1.6% over the next two years. 

According to survey respondents, NSW house prices will fall by 1.5% over the next 12 months, with the pace of decline slowing from mid-2013. 

The outlook for NSW is worse than that for the national housing market. 

While the national outlook has also declined, there is still an expectation that house prices will rise by 1% over the next two years. 

In the March survey, survey participants anticipated a 1.4% increase in national house price over the next two years. 

This change in mood is reflected in the NAB Residential Property Index (a measure of housing market confidence and expectations), which fell 11 points in the June quarter compared with a five-point rise in the first quarter of the year.

NSW is not the only market expected to struggle over the next two years. 

Property market participants are most pessimistic about Victoria, with weak demand, low rates of economic growth and slower population growth underpinning a further 0.7% fall in prices over the next two years.

The outlook for these two markets is in contrast to the outlook for the mining states, with improved forecasts for both WA and Queensland as well as South Australia/Northern Territory. 

In WA, house prices are forecast to rise by 4.1% over the next two years, compared to a previous forecast of 3.4% while Queensland prices are tipped to rise 2.5% compared to the March estimate of a 1.5% gain.

House prices in SA/NT are expected to rise 1.9% over the next two years. 

Nationally, those surveyed say the recent rate cuts and the prospect of a further rate cut in the third quarter of the will slow the pace of house price declines.

“Combined with an underlying national shortage of housing that is unlikely to be rectified soon given currently low levels of building activity, we would expect house prices to start growing again in 2013 and beyond,” says NAB. 

The survey found that positive rents and falling home values were still supporting rental yield growth, however national rental growth slowed to 0.4% in the second quarter of 2012, from 1.1% in the first quarter of the year. 

“This largely reflected a softer Victorian rental market where rising vacancy rates, slower population growth and higher construction rates saw rents fall by 1% in the second quarter of 2012,” says NAB. 

However, the rental outlook has softened relative to the March quarter survey, with rents now expected to grow by 3.5% (4.3% previously) over the next two years. 

Expectations softened in all states except WA (6.7% from 5.7% previously), where vacancy rates are likely to continue tightening as population increases are driven by strong state economic growth. 

Rental expectations in the next two years are weakest in Victoria (1.4%), followed by NSW (3.4%) and SA/NT (3.5%). 

The other key findings of the report are: 

• First-home buyers and resident investors were more active in the new property market in the second quarter.
• Demand is strongest for inner-city houses and lo-rise apartments/townhouses, but overall demand still very soft.
• Tight credit conditions and housing affordability the most “significant” constraints on new housing development.
• The extent of concern over interest rates falling rapidly as official rates continue being cut.
• Demand for existing property weaker in most locations and for most property types in the June quarter.
• Houses are still the most preferred type of property, especially in the inner city. Owner-occupiers are still the biggest players in the market.
• Capital growth expectations are strongest in the sub-$500,000 price range, while the outlook for properties over $2 million remains “poor”.
• Employment security now viewed as the biggest impediment to purchasing existing property, especially in Victoria and Queensland.
• Access to credit is also still a major issue.