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Mild growth in house prices: FNB

May 03 2011 09:47 Sapa

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Johannesburg - House price growth accelerated somewhat for April, according to the FNB House Price Index released on Tuesday.

"The April 2011 FNB House Price Index showed further mild acceleration in year-on-year growth on March's revised rate of 1.2% to 2.2%," said Ewald Kellerman, property market analyst at FNB, in a statement.

"This is the second successive month of mild acceleration in year-on-year house price growth, an event which we believe is the lagged result of a further brief flurry of interest rate cutting by the Reserve Bank (Sarb) late in 2010," he said.

"However, the last rate cut was five-and-a-half months ago in November, and it is likely that the impact is starting to wear thin."

The rate cuts led to a mild increase in residential demand.

In real terms which take into account the effects of inflation, the year-on-year decline in house price growth continued, at -2.8% in March.

This was because the nominal - where the effects of inflation are not taken into account - house price growth of 2.2% was below the consumer price inflation rate of 4.1%.

Kellerman said the FNB Valuers Market Strength Index suggested that the strength of demand for residential housing was deteriorating, after some signs of stabilising in the past few months.

"So, while price growth usually lags demand trend changes, and we are only now seeing the impact of rate cuts in house price trends, the weakening Market Strength Index suggests that the acceleration in house price growth will probably be short lived for the time being."

The threat of rising oil and food prices, as well as the rising consumer price inflation which went from 3.7% in February to 4.1% in March, could lead to rising interest rate hikes later in the year.

"Such an event, we believe sustains the possibility of renewed house price decline, given the current weak demand relative to supply," Kellerman said.
fnb  |  house prices  |  property

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