Prices Are Softening. Supply Is Still Tight.

NAB's Residential Property Survey for the September quarter, released on 14 October, put housing sentiment into negative territory for the first time in six years.

The index fell 18 points to -4. That was the third consecutive quarterly decline, and well below the long-run average of +22. Around 228 property professionals took part. The natural reading is that the market is cooling. That is partly right. It is not the whole picture.

What the survey actually says

Property professionals now expect house prices to fall 4.2 per cent over the next 12 months, compared with a 2.5 per cent decline expected in the June quarter. Over two years the expected fall is 1.9 per cent, from 0.9 per cent previously. Fifty-three per cent said the market in their area was declining, up from 33 per cent in Q2.

The state detail is uneven. New South Wales posted the weakest index at -22, down from +3 in Q2. Queensland fell to -9 from +22. Victoria sat at -5. The largest expected 12-month price falls were in South Australia at 5.4 per cent and New South Wales at 5.1 per cent. Queensland respondents pointed to a 3.9 per cent fall. Tasmania remained positive at +4.6 per cent.

Rents tell a different story. Respondents still expect rents to rise 3.7 per cent over the next year, easing only slightly from 3.9 per cent in Q2, and 4.0 per cent in two years. Softer values and still-rising rents can sit together when new supply stays constrained.

Why softer prices do not unlock the pipeline

Construction costs remain the main barrier to starting new housing developments, cited by 77 per cent of respondents. Interest rates moved into second place at 58.3 per cent, up from 39.6 per cent in Q2, overtaking planning permit delays at 54.1 per cent for the first time since the December quarter of 2023. By state, construction costs were the main barrier everywhere. Rates ranked second in every state except Queensland, where permit delays took that spot.

Owner occupiers continued to account for the largest buyer share. In new housing, the first-home buyer share fell to 25.2 per cent from 38.6 per cent in Q2, while owner-occupiers net of first-home buyers rose to 49.8 per cent from 37.8 per cent. In established markets, interest rates were the biggest constraint on home buyers for a second quarter, followed by access to credit. The level of prices fell to fourth place.

Stamp duty remains a friction point. Two-thirds of respondents said it was a barrier for first or newer buyers. Sixty-one per cent said it encourages people to stay put. Forty-three per cent said it discourages downsizing.

NAB Chief Economist Dr Sally Auld put the tension clearly: "Weaker price expectations don't remove the underlying supply challenge. High construction costs, interest rates and planning delays continue to make new development more difficult."

Auction clearances as a near-term check

Recent auction results sit beside the survey rather than replacing it. For the week ending 11 October, Cotality's preliminary combined-capitals clearance rate was 48.8 per cent from 1,781 auctions, the second consecutive week below 50 per cent on a preliminary basis. The final rate for that week was 44.1 per cent. Brisbane's preliminary clearance was 21.4 per cent, with Melbourne at 54.8 per cent and Sydney at 52.9 per cent. Cotality and AFR coverage also point to spring listing volumes running about a third below the same period a year earlier.

Clearance rates measure the share of collected auction results that sold. They do not, by themselves, say that the housing shortage has eased. Fewer auctions and weaker clearances can coexist with tight rental markets when the pipeline of new dwellings remains hard to start.

What I take from it

A few observations, offered as personal views.

First, a negative sentiment index is a shift in expectations, not a guarantee of how any local market will trade. State and segment differences remain large.

Second, price softness and supply constraint are not opposites. If construction costs, rates and permits keep projects from starting, the stock of new housing does not expand simply because vendors are less confident.

Third, for anyone working in property and credit, the practical read is about cashflow and timing. Rent growth expectations remain elevated. Buyer constraints have shifted toward rates and credit access rather than price levels alone. Servicing and absorption assumptions need to reflect both sides of that split.

None of this is a forecast or a call on any buyer, seller, borrower or lender. Softening prices do not, on their own, fix the supply problem the survey keeps describing.

Personal views, not financial advice.