Rising prices and rate cut relief drive surge in housing sentiment

NAB’s executive chief economist, Sally Auld, linked the upswing in property sentiment to the recent increase in house price growth and the effects of the Reserve Bank of Australia’s February rate cut.

“Housing market sentiment rallied in the March quarter as national house price growth accelerated. February’s rate cut is likely to have also factored,” Auld said.

“Overall, the NAB Residential Property Index rose to a well above average +40, after moving lower in the previous three quarters. Sentiment lifted across the country, except in Tas (though still positive at +33),” she added.

Across the capital cities, the NAB’s survey revealed that sentiment was highest in the Northern Territory (+100) and South Australia (+80) and bounced back into positive, albeit below average territory in NSW (+31) and Victoria (+16) over Q1 of 2025.

The variety of responses depending on each state showed that sentiment across the capital cities has begun to modulate at the start of 2025, compared to the previous quarter.

“When property professionals were asked to best describe the state of the housing market in areas where they operate compared to the previous quarter, the majority in WA (84 per cent), Qld (74 per cent) and SA (70 per cent) said the market is rising, approaching the peak or at the peak,” Auld said.

“In Vic (44 per cent) and NSW (40 per cent) however, most believe housing markets are now at the start of recovery,” she explained.

Due to the increased optimism across the capitals, the average survey expectation for house price growth lifted from 1.2 per cent to 2.3 per cent for the next 12 months, and rose from 2.7 per cent to 3.1 per cent for longer-term growth over the next two years.

While NAB’s data showed that expectations for house price growth are now positive and higher in all states aside from Queensland and Tasmania, Auld noted that forecasts still vary widely nationwide.

“Expectations are most positive in the NT (5.0 per cent) and WA (4.7 per cent) and lowest in Vic (0.8 per cent),” Auld said.

“Longer term projections also increased in all states bar WA where they were trimmed back (2.9 per cent) and unchanged in NSW (2.7 per cent). The outlook is strongest for Tas (4.8 per cent) and the NT (4.4 per cent) and lowest in the ACT (2.2 per cent) and NSW (2.7 per cent).”

Rental growth tipped to accelerate

The Property Survey also investigated expected rental growth across the states, with respondents widely forecasting an accelerated rental growth nationwide.

Data showed that rents are expected to rise from 1.6 per cent to 2.2 per cent, and increase by 0.1 percentage points to estimated 2.7 per cent growth over the next two years.

Across the nation, Auld said that expectations for rental growth over the next year notched upwards in all states except for the NT and Victoria, with an ever greater proportion earmarked for growth over the next two years.

Although Auld forecast positive income returns across Australia (except the ACT) within two years, she noted that growth expectations have been revised downward in Victoria, South Australia, Western Australia, and the ACT.

First home buyer activity recedes over Q1 2025

While market activity in the first home buyer sector reduced over the March quarter, Auld said owner-occupier sales lifted over the beginning of 2025.

“The market share of FHBs in new housing markets in the March quarter fell to 34.2 per cent after climbing to a two-year high 38.2 per cent in the final quarter of 2024,” Auld said.

“Sales to owner-occupiers (net of FHBs), however, increased to an above average 41.7 per cent (from 37.6 per cent), but local investors were less active (16.3 per cent down from 17.9 per cent).”

The demographic shift was also evident, with owner-occupiers’ activity rising to a three-year high of 46.2 per cent over Q1 2025, in established housing markets.

“FHBs overall accounted for a lower 32.8 per cent of total sales (down from 35.5 per cent), with the market share of sales to local investors also lower at 15.9 per cent (down from 17.2 per cent) and well below average (18.6 per cent),” Auld said.

Auld noted that levels of first home buyer activity also ranged widely across the state from 21.3 per cent in Queensland, to just 9.1 per cent of buyers in Victoria, which she said was “by far the lowest of all states”.

Legislative fears drive spike in foreign buyer activity

NAB data showed that the market share of foreign buyers in Australian housing rose to 6.9 per cent in new housing and 3.1 per cent in established markets.

However, Auld noted that these figures remain “well below” the survey’s average levels of 9 per cent and 5 per cent, respectively.

Nevertheless, Auld said that this activity over Q1 of 2025 represented a measurable spike in foreign buyer activity.

She said the surge may have been driven by the government’s announcement earlier this year that foreign buyers would be temporarily banned from purchasing established dwellings in Australia from 1 April onwards.

Forecast for residential property prices remains optimistic

While NAB’s data showed an easing in price growth across the smaller capitals during Q1 2025, the bank noted that price growth stabilised in Australia’s two most populated cities.

“Across capital cities, price growth has converged somewhat through early-2025, with the rapid growth seen in Adelaide, Brisbane and Perth slowing,” Auld said.

“After a period of weakness, prices in Sydney and Melbourne are also now stabilising,” she added.

On a broader scale, however, Auld said that NAB broadly anticipates positive price growth for the greater residential property market, which future interest rate cuts could further bolster.

“Our forecasts for residential property prices are broadly unchanged, with the eight-capital city house price index expected to rise 3 per cent this year and by around 6 per cent over 2026 as falling interest rates support price growth,” she concluded.

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