NAB lifts home price growth forecasts

House prices in eastern Australia are growing faster than expected this year but are set to cool in 2017, says NAB.

A home goes under the hammer at Northcote in Melbourne — one of the suburbs singled out by NAB.

Australian housing market sentiment improved through the third quarter, with the persistent strength of the sector forcing National Australia Bank to upwardly revise its price growth forecasts.

The NAB Residential Property Index — which assesses the views of 240 property professionals — improved to +15 from +3 in the third quarter, with sentiment rising in all regions beyond South Australia and Northern Territory.

New South Wales and Victoria unsurprisingly led the way as an east coast boom driven by the most populous cities of Sydney and Melbourne shows no significant signs of slowing.

Indeed, such is the confidence in the two state capitals that they were home to 10 of the 14 suburbs tagged as those most likely to outperform the broader market by those surveyed.

Among the suburbs expected to shine in the coming 12 months are Berwick, Brighton, Northcote, Seaford and South Yarra in Melbourne; Blacktown, Camperdown, Marrickville, Schofields and the Sydney CBD in the nation’s most populous city; Coomera, Gold Coast and North Ward in Queensland; and Mile End in Adelaide.

Sydney’s Marrickville is tipped to shine.

Perth had no presence in this part of the survey, with Western Australia struggling to rebound at the end of the mining boom.

“The NAB Residential Property Survey continues to show significant variances in sentiment between the states, with the eastern seaboard still leading the charge and negative sentiment in mining-led states, particularly in WA which remained at a survey low -67,” NAB chief economist Alan Oster said.

“Overall confidence has also waned slightly with the index expected to remain unchanged in 2017, but falling to +30 points (from +39) in two years’ time.”

The survey also assessed the influence of foreign buyers and while investors in general were seen boosting their presence, the market share of foreign buyers dipped to 10.2 per cent, the lowest mark since mid-2012.

Property professionals are currently anticipating house price inflation of 1.3 per cent over the next 12 months, with higher expectations seen in Victoria, NSW, the ACT and South Australia.

In contrast, views remain downbeat on Western Australia, while expectations have been trimmed for Queensland.

NAB also revised its national house price forecasts for 2016 up to 7.9 per cent, from prior expectations for a rise of 5.1 per cent.

“We have revised our price forecasts upwards in response to a sharp rise in the six-month annualised growth in dwelling prices, particularly in Sydney and Melbourne,” Mr Oster said.

“The RBA’s recent interest rate cuts have been a major source of support, while investor credit has also picked up again. On the supply side, there also appears to be a number of factors at play with auction and sales volumes down compared to a year ago.”

NAB has retained its view for the market to cool next year, however, with prices tipped to inch up 0.4 per cent through 2017.

Despite the lacklustre forecast, Perth is the only state capital expected to realise a price fall next year, although unit prices across the capitals are anticipated to slide 1.6 per cent amid expectations of a supply glut

“As we have said for some time, there is considerable uncertainty over the outlook for dwelling prices,” Mr Oster said.

“We are expecting a more subdued environment from late-2017 as supply conditions become less favourable.

“However, we continue to hold the view that residential property prices are unlikely to experience a severe price ‘correction’ without a trigger that leaves unemployment or interest rates sharply higher — which we are not anticipating.”

While a sharp correction may not be in the works, the bank’s analysts did warn the stronger-than-expected performance this year would likely lead to a more prolonged cooldown period.