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Johannesburg - The average house price growth slowdown continues, with the November FNB House Price Index recording a year-on-year rate of increase of 3.8%, lower than the previous month's revised rate of 3.9%, banking group FNB said on Wednesday.
"It is possible that the slowing pace of decline is reflective of some additional stimulus that the Reserve Bank (SARB) has given to the market through its interest rate cut in September, while the November rate cut would only be reflected in the numbers in coming months," said John Loos, property strategist at FNB Home Loans.
The average price for November was R787 530, from R783 621 in October, FNB said.
Loos said that it was far too early to say whether the slowing pace of decline in the FNB House Price Index rate of increase was an indication that the residential property market was beginning to turn for the better.
"Certainly our FNB Valuers' Market Strength Index suggests that our group of valuers do not perceive an improvement yet," he said.
However, the property expert noted that certain key economic indicators pointed to a few months of improved performance ahead.
"Firstly, after a lengthy pause since March, the SARB resumed interest rate cutting in September, and we have had two consecutive half a percentage point rate cuts in September and November, which we would expect to have a mildly positive impact on residential demand in the short term," he said.?
FNB added that the SARB Leading Business Cycle Indicator had started to rise month-on-month recently, suggesting that after a few quarters of economic growth slowdown, South Africa may be in for improvement in growth.
"This obviously has the potential to support slightly stronger household sector income growth," the bank said.
"The mild turnaround for the better in the SARB Leading Indicator is probably the result of a combination of key global leading indicators pointing towards short term improvement in global economic performance, while locally the September interest rate cut would have made a difference," according to Loos.
He added that the Leading Indicator was generally closely correlated to trends in the value of new residential mortgage loans granted.
"Therefore, we believe that, at present and in early-2011, we should be experiencing a short term mild improvement in residential demand even when the usual seasonal factors are excluded," he said.
Caution Urged
FNB said it would continue to be cautious in its expectations of the medium term, i.e. six months to a year from now.
"The reason is that there are signs that the domestic consumer price inflation rate may be at or near to the bottom of its cycle. Residential rental inflation is beginning to tick up (a major component of the CPI), while improvements (declines) in the rate of global commodity price inflation and the trade-weighted rand have slowed.”
It said that while inflation was far from being a problem at this stage, the possibility of a flattening out and a gradual upward turn in 2011 may mean a lack (if any) of further interest rate cuts.
That may result in a “flat” market, Loos said.
FNB said that the key longer-term challenge for the residential market remained in the area of a high household debt-to-disposable income ratio (78.2% as at the 2nd quarter), and how to get this ratio down.
The group pointed out that the household sector credit growth remained on a gradual strengthening path in October, rising further from 6.3% year-on-year in the previous month to 6.6%, driven more by the likes of instalment sales credit growth and "other loans and advances" than by mortgage loan growth.
"This gradual rise in household credit growth looks set to restrict the pace of decline in the debt-to-disposable income ratio. The still-high household debt ratio, unfortunately, leads us to expect another pedestrian year in 2011 for residential property, following a very mild short-term uptick," Loos said.
