In the first NAB Residential Property Survey since the RBA cut the official cash rate in May this year, housing market sentiment amongst property professionals softened.

The NAB Residential Property Index fell to +3, from +6 in Q1 2016, to remain below its long term average of +13.

Sentiment moderated in all states except SA/NT, which rose 19 points, albeit still in negative territory. New South Wales joined Victoria as the best performing state, followed by Queensland.

Confidence has however improved, with the national index rising to +29 next year, and +36 in two years’ time.

The NAB Residential Property Survey for Q2 2016 also found that respondents expect Victoria and Queensland to provide the best capital returns over the next one to two years.

“It’s still a mixed picture across Australia, with house price expectations for the next 12 months holding up well in the eastern states whilst staying flat in SA/NT and continuing to fall sharply in WA,” NAB Chief Economist Alan Oster said.

NAB Economics has also revised its national house price forecasts for 2016 upwards to 5.1% (from 1.5%). Unit price forecasts were revised up to 3.6% for 2016.

“Our upwards revisions in price forecasts reflects the strength in prices to date. Over the last six months, Sydney and Melbourne prices have increased by an annualised rate of nearly 19% and 12% respectively,” Mr Oster said.

“However, while there is significant amount of uncertainty over the outlook for prices, we expect that this renewed momentum in the housing market is unlikely to be sustained over the longer term.”

Looking out to 2017, NAB forecasts prices to be flat across most capital cities, with falls particularly in Perth, Melbourne and Brisbane.

While the declines in Perth largely reflect economic conditions, the falls in Melbourne and Brisbane can be partly attributed to added supply and weaker investor demand.

“NAB is forecasting a much softer residential property market, with 0.5% growth in house prices and nearly 2% decline in unit prices in 2017,” Mr Oster said.

NAB Economics continues to hold the view that residential property prices are unlikely to

experience a sharp ‘correction’ without a trigger from a shock that leaves unemployment or interest rates sharply higher.

The Residential Property Survey series also measures foreign buyer activity in the Australian housing market.

Market share of foreign buyers in new Australian housing markets fell for the third straight quarter in a row – to 10.4%. A sharp fall in foreign buyer activity in Queensland was offset by growth in Victoria and a modest rise in NSW. Market share of foreign buyers in established markets was unchanged at 7.2%.

About 230 property professional participated in the Q2 Survey.