Rising unemployment to dampen house price growth: NAB

The housing market sentiment strengthened notably in the September quarter, underpinned by an acceleration in house price growth in all states except Western Australia, according to a survey by NAB.

National house prices rose 1.3% this quarter, up from 0.1% in the second quarter.

New South Wales experienced the greatest increase of 1.9% and Victoria followed at 1.5%.

The survey reveals that national house prices are tipped to rise 3.3% in the next year and 4.5% in the next two years but NAB expects rising unemployment to dampen house price growth and sees capital city house prices rising 3.5% in the next year and only 3% in the next two years.

According to the survey, demand has improved for all types of new and established property but tight credit and employment security are the key obstacles to buying property.

First home buyers have retreated from the market and demand from Australian investors are slightly lower at, except for New South Wales at, where foreign investment activity also rose but slowed in Victoria over the quarter.

A combination of slow rental growth and faster capital appreciation suggests that rental yields are eroding with rents increasing 0.2% over the quarter, compared to 0.1% in the previous quarter.

New South Wales increased 0.9% over the quarter, Queensland increased 0.7% and Victoria increase 0.3%.

Western Australia rents fell 1% and South Australia and the Northern Territory fell 3% over the quarter.

According to the survey, the fall in Western Australia rents can be attributed to the employment impact of the mining slowdown, which reduced demand for accommodation.

New South Wales and Queensland lead the way for income growth in the next year, with both New South Wales and Queensland forecast to grow 2.5%, Victoria to grow 2% and Western Australia to show the weakest returns of 1%.

National rents are forecast to grow 3.1% in the next two years, compared to 2.6% previously, with returns highest in Queensland at 3.9% and New South Wales at 3.5%.

The survey reveals a jump in owner occupier activity in the new property market in the September quarter, with their share of new property demand rising above 41%, compared to 36% in the previous quarter.

Owner occupiers were identified as most active in Victoria at 48% and Western Australia at 47%.

First home buyers retreated this quarter from 21% to 19%, with Queensland reporting the least activity of just 9% compared to 26% in Western Australia.

This article first appeared on Property Observer.