Foreign buyers are returning to the Australian market, with a new NAB survey revealing they now account for 7.9% of the demand for new homes.

The lift is the third consecutive quarterly increase of foreign buyers and the highest level since mid-2020s although still below the peak demand of nearly 17% at the height of the housing boom in 2014.

The survey shows first-home buyers still dominate the new housing market, although their share of total sales fell to a two-and-a-half year low of 40% in the first quarter of 2022. NAB is predicting a moderate increase in Australian house prices this year with Sydney and Melbourne recording only small increases.

It expects prices to drop in 2023 and says Sydney and Melbourne could experience price drops of more than 11%.

The NAB report, however, has a track record of inaccurate forecasting, wrongly predicting major price decline in 2020 and only moderate growth in 2021.