New data by FNB shows that year-on-year house price growth has steadily slowed over past seven months amid weakening demand and residential activity levels.
In November 2016, the FNB House Price Index continued to cling onto low positive year-on-year growth, noted household and property sector strategist at FNB Home Loans, John Loos.
However, the rate of year-on-year growth has been slowing steadily, and on a month-on-month basis the index has already been in mild deflation for the past four months.
“This weakness is not too surprising, given other FNB non-price indicators that have for some time been pointing to weakening demand and residential activity levels. The recent price growth weakness is thus the lagged impact of a multi-year weakening in economic growth, which has caused slowing housing demand and an alleviation of prior supply constraints in the market,” Loos said.
The FNB House Price Index for November 2016 saw its year-on-year growth rate slow further to 1.9%, from an October revised rate of 2.6%. This represents the 7th consecutive month of slowing year-on-year price growth.
“What is also noticeable in these past seven months is that the pace of slowdown in growth has been noticeably more rapid than any slowing growth phase of the past five years or so,” said Loos.
As recently as April, the year-on-year rate was a significantly stronger 6.9%, FNB said.
Other residential market indicators including the FNB Valuers Demand Rating as well as the FNB Estate Agent Survey Activity rating, have showed decline dating back to 2015 – so the warning signs have been there for a while, Loos said.
“In real terms, one could say that a price ‘correction’ is under way,” he said. Adjusting for CPI (Consumer Price Index) inflation, the November average real rate of decline was -3.5% year-on-year in October (November CPI data not yet available), given CPI inflation above 6%, and the November real decline promises to be even more significant.
Since December 2015, the average house price in real terms has declined by -4.3%. And since the end of 2007, the boom time real house price high point, real prices are -21.9% down.
Loos said that he expects little in the way of residential supply constraints in 2017, resulting in a year of low house price inflation averaging near to 3%. “This would translate into an average house price decline in real terms for 2017, when adjusting for CPI inflation.”