NAB: The housing market may have peaked

  • By Zilla Efrat

NAB’s latest Australian residential property survey reveals that housing market sentiment for the third quarter of 2021 has eased from record highs.

With house prices slowing, sales easing and building approvals falling, it suggests that the housing market may have passed its peak.

The NAB Residential Property Index dipped to +60 points in the third quarter from a survey high +71 points in the second quarter.

The survey found that construction costs are now seen as the biggest constraint on new housing developments in Australia.

With strong building demand and shortages of materials reportedly causing building costs to rise strongly, NAB finds that construction costs have surpassed a lack of development sites as the biggest impediment for new housing development.

In established markets, property professionals surveyed by NAB identified a lack of stock as the biggest constraint facing buyers in all states.

The survey also found that though foreign buyers are still bit players in local housing markets, a significant net number of property professionals now expect their market share to rise in the next 12 months, especially in new residential markets.

NAB found that sentiment has softened in most parts of the country and still is the lowest in Victoria. In addition, confidence fell again but is still above average.

The survey’s expectation is for house prices in the next 12 months to outpace rents. This means gross yields should fall before levelling out in two years’ time as prices and rents rise at a similar pace, says Oster.

However, based on survey forecasts some states, such as Western Australia, the Northern Territory and the ACT, may see yields rise.

NAB has revised its forecast growth in dwelling price to 23 per cent in 2021 and 5 per cent in 2022.

“We have slightly revised up our forecast for dwelling prices in 2021 based on stronger than expected outcomes in recent months as well as small upgrade to our expectations for the fourth and early-2022,” says NAB group chief economist Alan Oster.

“Overall, that sees a very strong print for house prices in 2021 but a sharp slowing in 2022 as the impact of lower interest rates fades and affordability constraints begin to bind.

“Our outlook is generally similar across states, but the relative performance in the year to date sees Sydney and Hobart print very strong outcomes, with Melbourne and Perth seeing softer (but still strong) outcomes.

“Overall, the property market held up remarkably well despite the disruptions to the economy with strong support provided by policymakers and little labour market fallout through the pandemic.”