First National Bank says it expects further gradual interest rate hikes through 2016, to a level where the prime lending rate peaks at 11.25% in the first quarter of 2017, from a current level of 10.25%.
Property specialist at FNB, John Loos said that after a Real GDP growth rate believed to have been not far from 1.5% in 2015, the financial services firm’s forecast is for slower growth of 0.5% in 2016.
“The further expected slowing in growth is on the back of ongoing global commodity price weakness, gradually rising interest rates, and of course the major drought currently ravaging the Agriculture Sector,” Loos said.
The FNB House Price Index showed a year-on-year increase of 6.5% in February 2016, virtually unchanged from the revised 6.5% for the previous 2 months.
This rate is being supported by ‘low base’ effects, due to a dip in monthly house price inflation a year ago. The most recent months’ house price growth rates are mildly down off the 6.9% 2015 high point of October, the bank said.
However, under the current economic conditions, the forecast for average house price
growth is to slow from 6% average for 2015 as a whole, to 4.8% for 2016, and a still slower 3.8% in 2017.
While still positive in nominal terms, the projected rates would be below CPI inflation, translating into negative growth in real terms, FNB said.
“Such negative real growth would reflect both higher interest rates along with ongoing weakness in economic growth, employment and household income growth,” it said.
The rental market could mildly outpace the home buying market through the forecast period, in turn leading to rising yields on residential property, Loos said.