Bad news for South Africa’s housing market

New data from FNB points to a broad-based slowing in the housing market in South Africa, amid mounting financial constraints in the household sector driven by recent years of house price inflation exceeding per capita income growth, rising interest rates, and growing concern amongst consumers about their economic and financial future.

The FNB Area Value Band House Price Indices provide a picture of the relative performances across areas, grouped by average price levels of those areas, in the 6 major metros of South Africa – Tshwane, Joburg, Ekurhuleni, Ethekwini, Nelson Mandela Bay and Cape Town.

“Of late, the relative performances continue to point to the high end of the market being generally a bit weaker than the more affordable metro areas, as one would expect in these increasingly constrained economic and financial times,” said John Loos, household and property sector strategist at FNB.

Using Deeds data transactions by individuals, FNB compiles a four ‘core’ house price indices by  price band:

  • Upper Income Areas – Average house price of R2.891 million;
  • Middle Income Areas – Average Price of R1.506 million;
  • Lower Middle Income Areas – Average Price of  R921 886;
  • Low Income Areas – Average Price  of  R492 341.

“On a year-on-year basis, we see the low income area house price index showing the strongest growth, and actually having accelerated mildly, recording 6.0% year-on-year for the 3rd quarter of 2016 compared with a previous quarter’s 5.8%,” Loos said.

FNB said that the middle and upper income area segments’ average house price growth was the slowest of the area value bands in the third quarter, the middle income area segment recording 3.3% year-on-year average house price inflation, and the upper income area segment recording 3.9% for the same period.

Read: The average house price vs household income in South Africa’s provinces

On a quarter-on-quarter basis, however, all four segments having shown a loss of price growth momentum.

The low income area index has seen its quarter-on-quarter growth slow from 1.7% in the first quarter of 2016 to 1.2% by the 3rd quarter, FNB said. At slower rates, and bunched together at very similar growth, are the lower middle income and middle income areas with 0.7% growth, and the upper income areas with 0.8%, all having slowed from the previous quarter’s growth rates.

Loos said that recent transaction volume decline across all four of the major price bands is also a reflection of housing demand slowing.

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Bad news for South Africa’s housing market