"People will wait and see who wins the election, and if Labor does win, then I think there will be a big rush of investors getting into established properties," he said.

The impetus to wait and see for housing investors in Sydney was strengthened on Thursday when NAB lowered its outlook for the country's largest city to a 20 per cent peak-to-trough decline from the 15 per cent it expected in its last quarterly report in January.

House prices had fallen faster than expected, NAB chief economist Alan Oster said.

"We thought they’d probably stay around 12 per cent and we’ve already seen 3 or 4 percentage points more this year – we’re almost at 15 per cent," Mr Oster told The Australian Financial Review on Thursday.

"We still think there’s 3 or 4, maybe 5 percentage points in falls to go."

NAB has lowered its outlook for Sydney house prices. Peter Rae

Prices in Melbourne, by contrast, were falling in line with expectations, so NAB kept its forecast for the Victorian capital unchanged at 15 per cent.


Mr Oster said the forecasts do not assume any changes to negative gearing or capital gains tax deductions, which the opposition Labor Party says it will make if elected in the May 18 federal election.

"Do you think you can model negative gearing impacts based on what happened 20-odd years ago when interest rates were 14 per cent and house prices were going up 30 per cent and it was only there for 18 months? " Mr Oster said.

The deterioration will undoubtedly increase scrutiny of housing policies for Sydneysiders over the coming election campaign. But on Thursday, agents said little had changed.

"I've been through a number of elections and often people say 'we're going to wait 'til after the election'," said agent Rhonda Yim of Belle Property Annandale.

"There is definitely a quietness in the market."

The Sydney-led deterioration deepens the overall decline the bank expects this calendar year across Australia's six state capitals to 6.1 per cent, from 3.8 per cent in January. The bank has also lowered its expectation for unit prices, and now says they will fall 5.6 per cent this year, compared with the 4.4 per cent decline predicted three months ago.

On Queensland's Gold Coast. Harcourts Coastal real estate agent Tolemy Stevens said the top end of buyers – who typically wanted a private beach house in addition to their eastern suburbs Sydney or Melbourne homes –wouldn't be affected by election concerns.


"They’re not purchasing these properties for $3 million to $6 million to be putting a permanent tenant in or to put in a holiday pool," Mr Stevens said.

"They’ll keep them vacant as private holiday homes to utilise, so negative gearing etc have no bearing whatsoever on their consideration for purchase.

Lower-priced segments of the market were likely to be affected, however.

"But if you were in the half million-to-million range where they’re going to be thinking about negative gearing … that part of the market may see a push back from potential purchasers in the marketplace," Mr Stevens said.

NAB's Residential Property Index reinforced a point that many other

commentators have made about the housing market – credit curbs were key to how the market performs.

"NAB Economics also remains of the opinion that tight credit will continue to be the single biggest constraint for new housing developments in the near

future as risk aversion remains a key theme among lenders," the report says.


The coming weekend will test buyers' resolution. CoreLogic figures predict 2166 auctions nationally this week, up from 1976 last week, with Melbourne's total little changed at about 891. The number of scheduled auctions in Sydney is likely to pick up to 891 from 742.

Last week's final auction clearance rate of 52.6 per cent was the highest rate since September, albeit on much lower volumes, CoreLogic research analyst Cameron Kusher said.