The NAB Residential Property Index has fallen -7 points to +12 in Q4 2014 as house price expectations pared back and rents weakened.
The index said the sentiment is softer in all states and still deeply negative in Western Australia.
NAB chief economist Alan Oster said NSW overtook Queensland as the strongest state in Q4, but Queensland and Victoria were the most optimistic looking forward, with WA the least optimistic, by some margin.
For the first time, NAB said their Quarterly Australian Residential Property Survey also distinguished between first home buyers purchasing for owner occupation and investment purposes.
“The results indicate that first home buyers purchasing for investment purposes accounted for almost eight per cent of total new property demand and just over nine per cent in existing property markets," Mr Oster said.
"This suggests that affordability constraints or potential capital gains are encouraging some first home buyers to delay moving in to their first homes."
NAB expects house prices to moderate because of rising unemployment, sluggish household income growth, affordability concerns, cost of living pressures and high levels of household debt.
However, they said two further interest rates cuts this year should help support house prices a little more than previously expected.
“We are forecasting average house price growth of around four per cent over the year to end-2015 and two per cent over the year to end-2016”, said Mr Oster.