Real house price growth deflates further - index

Cape Town - In real terms - that is after adjustment for the effect of consumer price inflation - house prices in the middle-segment of the SA housing market deflated further in September this year.

This is according to the Absa house price indices, said Jacques du Toit, property analyst at Absa Home Loans.

He said October 2016 saw year-on-year growth in the average nominal value of middle-segment homes in the South African housing market remaining relatively low against the background of trends in and prospects for the economy and the household sector. On a month-on-month basis, prices showed subdued growth of less than 0.5% in October.

Nominal price growth in the middle-segment of the housing market came to 4.4% year-on-year in October this year, with real price deflation in September recorded at 1.7% year-on-year. The average price of a middle-segment home was in real terms about 12% lower in September this year compared with the peak in August 2007.

"In view of economic and household sector-related trends and prospects, nominal house price growth is forecast to average between 3.5% and 5% in 2016 and 2017, with prices set to deflate by 1.5% to 2% in real terms over this period. Real house price trends will be affected by consumer price inflation, which is expected to average 6.3% this year and 5.5% next year," said Du Toit.

The average nominal value of homes in each of the middle-segment categories in October 2016 was R961 000 for small homes (80m²-140m²); R1 316 000 for medium-sized homes (141m²-220 m²); and R2 008 000 for large homes (221m²-400m²).

Du Toit said the South African economy posted relatively low real growth of only 0.3% y/y in the first half of 2016 and the forecast is for the economy to grow by a real 0.4% in 2016 and 1.1% in 2017. Headline consumer price inflation measured 6.1% y/y in September, with the year-to-date average at 6.2% y/y.

"Inflationary pressures still persist with headline CPI forecast to remain above 6% y/y up to early 2017 before declining steadily to around 5% y/y by the end of next year. Interest rates were kept unchanged after being hiked by a cumulative 75 basis points in the first quarter of the year and are forecast to remain stable up to year-end, with rate movements to remain highly dependent on trends in key economic and financial market data," said Du Toit.

"Consumers are to experience further financial strain over the short to medium term, with employment and income growth to remain much subdued. Spending power will be eroded in view of inflationary pressures, interest rate trends and expected tax increases in 2017."

Credit risk profiles, financial vulnerability and credit health will affect the accessibility of, the demand for and growth in household credit. The low level of consumer confidence is expected to continue and may deteriorate further over the short to medium term, with confidence an important factor impacting credit demand and the performance of the property market.