South Africa’s real house prices are massively off peak highs
The FNB House Price Index for February 2017 remained in the growth ‘doldrums’, rising by a mere 0.8% year-on-year, according to FNB – slightly lower than the revised 0.9% rate recorded in January.
The average price of homes transacted in June was R1,057,719, the lender said.
In real terms, when adjusting for CPI (Consumer Price Index) inflation, the rate of house price change remains in negative territory, having recorded a -5.3% year-on-year decline in January.
This is the result of a combination of 6.6% average house price inflation and 0.9% CPI inflation in January, FNB said.
The magnitude of this house price deflation in real terms has begun to represent a noticeable house price correction of late. Since December 2015, the average real house price has declined by -5.6%, FNB said.
The average real house price level is now -23% below the all-time high reached in December 2007 at the back end of the residential boom period.
Examining house price growth on a month-on-month basis shows a move back into positive territory in January and February, FNB said.
On a seasonally-adjusted basis, month-on-month house price inflation measured 0.14% in February, after a revised slightly positive rate of 0.01% in January. That comes after deflation for the last five months of 2016, the lender said.
“Therefore, while South Africa’s average house price growth continues to “bump along the bottom”, certain key leading business cycle indicators (along with improved rainfall in many agricultural regions) point to some near term improvement in economic growth,” said household and property sector strategist at FNB Home Loans, John Loos.
This, in turn, could mean some mild strengthening in average year-on-year house price growth a few months from now, and although it is too early to draw conclusions, the January/February move in the FNB House Price Index month-on-month growth rate into positive territory could be the start of such strengthening, he said.
Looking forward, FNB said that its economic growth projection is for a muted recovery from an estimated 0.4% in 2016 to 1.1% in 2017. “This expectation, along with a forecast for interest rates remaining unchanged for the entire year, leads us to expect some strengthening in average house price growth later in 2017 but no fireworks,” Loos said.
This, in turn, leads to an average house price forecast of 3% for 2017, higher than where house price growth is currently at. However, this would still represent a lower average house price growth rate than the 5% of 2016, FNB said.
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