Property professionals tip 4.2% house price fall as sentiment turns negative

Australian property professionals have become markedly more pessimistic about the housing market, forecasting a 4.2 per cent fall in house prices over the next year while expecting rents to keep rising.

NAB’s Residential Property Survey for the September quarter found its national property index dropped 18 points to minus four. It was the third quarterly fall in a row and the first negative reading in six years, leaving the measure well below its long-run average of plus 22.

The index combines survey respondents’ views about house prices and rents. About 228 real estate agents and managers, developers, investors, fund managers and other property professionals participated, so the results represent industry sentiment rather than a prediction guaranteed to occur.

Even so, the scale and breadth of the change offer buyers and sellers another indication that the balance of the market has shifted.

Price expectations have weakened

Respondents now expect Australian house prices to fall 4.2 per cent over the coming 12 months, a larger decline than the 2.5 per cent forecast in the June-quarter survey. They also expect prices to be 1.9 per cent lower in two years, compared with the previous forecast of a 0.9 per cent fall.

South Australia recorded the weakest one-year forecast at minus 5.4 per cent, followed by New South Wales at minus 5.1 per cent and Victoria at minus 4.8 per cent. Tasmania was the main exception, with respondents expecting prices to rise 4.6 per cent during the next year.

More than half of respondents described the market in their area as declining, up from one-third in the previous quarter. A further 14 per cent said their market was starting to decline, while 13 per cent believed it was approaching the bottom.

For buyers, weaker price expectations may create more negotiating room, but borrowing capacity and repayments remain major constraints. NAB found interest rates were the biggest obstacle facing buyers of established homes for a second consecutive quarter, followed by access to credit.

Sellers may need to pay closer attention to comparable recent sales rather than earlier peak prices. A property can still attract competition if it is scarce or well located, but the national survey suggests buyers have become more selective and price-sensitive.

Rents are still expected to rise

The survey points to a continuing split between sale prices and rents. Property professionals expect rents to rise 3.7 per cent nationally over the next year and 4 per cent over two years.

One-year rent forecasts were highest in Western Australia and South Australia, both at 6.4 per cent. New South Wales had the lowest expected increase at 2.2 per cent.

These forecasts suggest falling property values would not automatically produce cheaper rents. Rental conditions depend on available stock, household formation and the delivery of new dwellings as well as sale prices.

New supply remains difficult

Construction costs were identified as the main barrier to new housing projects by 77 per cent of respondents. Interest rates moved into second place at 58.3 per cent, overtaking planning permit delays at 54.1 per cent for the first time since late 2023.

The share of first-home buyers in new housing also fell sharply, from 38.6 per cent in the June quarter to 25.2 per cent. Their estimated share of established-property purchases declined from 39 per cent to 34.4 per cent.

NAB’s survey also asked about stamp duty. Two-thirds of respondents said it created a barrier for first or newer buyers, while 61 per cent believed it encouraged owners to stay in their existing homes and 43 per cent said it discouraged downsizing.

The combined picture is not simply one of cheaper housing. Prices may be under pressure, but high financing and construction costs are also limiting purchasing power and the supply response.

What it means for you

• Buyers may have more bargaining power, but should base offers on recent local sales and repayment capacity rather than national forecasts.
• Sellers should allow for longer campaigns and greater price sensitivity, particularly in weakening markets.
• Renters should not assume falling sale prices will lead to falling rents, with surveyed professionals still expecting national rental growth.
• Investors and developers face a difficult mix of softer values, higher interest costs and persistent construction barriers.