‘Opposing forces’ to face housing market: NAB

Major bank NAB’s The Forward View: Australia September 2023 report compiled by the NAB Group economics team predicted “opposing forces” of higher interest rates and strong demand from the rebound in population growth to continue to face the housing market.

According to the outlook, housing prices and rent growth “remain robust” along with housing demand amid construction completion rates nearing around decade lows.

The major bank expects dwelling investment to remain weak, although should be supported by rising house prices and the current strength in housing demand.

The report noted a lift in CoreLogic’s eight-capital city dwelling price index, up by 1 per cent in August after it slowed to 0.8 per cent month on month in July.

In addition, the report stated that building approvals appear to have stabilised in trend terms.

“The trend easing in the detached housing also appears to be slowing but remains around its lowest level in a decade,” the economics team stated.

“The volatile apartments series (which fell 8 per cent in July) also remains low.”

GDP outlook upgraded

On the back of the release of the second quarter national accounts, the major bank has upgraded its gross domestic product (GDP) growth forecasts, now expecting growth of 1.1 per cent over 2023 and 1.4 per cent over 2024.

According to the NAB economics team, this upgrade reflected the “stronger-than-expected” result for Q2 and an upward revision to Q1.

“At [approximately] 1 per cent–1½ per cent, our expectation remains that growth will be well below trend over the next two years, weighed down primarily by sluggish growth in household spending as inflation and monetary policy weigh on households,” the economics team stated.

Rate hike prediction brought forward

The major bank remains as the outlier among the big four in terms of rate forecasts, being the only one to predict a further cash rate hike of 0.25 bps to bring the official cash rate to 4.35 per cent.

Previously the major bank had predicted the final hike to occur during the December monetary policy meeting, however, it has since pushed the last hike forward, now expecting a hike in November.

“The recent run of activity data suggests there may be some downside risk to this, but the resilience in the labour market and potential for ‘sticky’ services still present an upside risk,” NAB Group economics team explained.

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