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Johannesburg - The average house price for March 2014 rose 8.6% year-on-year, according to the latest FNB House Price Index.
This is virtually unchanged from February’s upwardly revised growth rate of 8.6%, reflecting a residential market that remains solid, said John Loos, FNB's household and property sector strategist.
Real house price growth - that is when house prices are adjusted for consumer price inflation (CPI) - came in at 2.48% year-on-year in February. March CPI not yet available.
This represents a slight slowing from revised 2.6% real price growth in January, due to the pace of CPI inflation having quickened a little in February, from 5.8% in January to 5.9%.
The average price of homes transacted was R951 490.
In real terms, the index remained well-above levels of a decade ago, up 26.1% from February 2004.
However, compared with last decade’s real average price peak, reached in December 2007, the February 2013 real price was still -17.3% lower.
In nominal terms, the March 2014 average price was 118.1% higher than the March 2004 price level, but only 20% above the December 2007 level.
Valuers
The FNB Valuers’ Market Strength Index is now getting very near to the crucial level of 50.
This implies that the index has nearly reached a level where the valuers’ aggregated demand rating draws equal in strength with the valuers’ aggregated supply rating.
The Market Strength Index pointed to further improvement in the market demand-supply balance in March 2014, to reach a level of 49.52.
Rising demand rating
The increase in this index continued to be fuelled by the combination of growth in demand along with mounting supply constraints, as reflected in a rising demand rating and declining supply rating.
While the pace of improvement in the Market Strength Index remains strong, recent months’ month-on-month growth (seasonally adjusted) in this index have slowed slightly.
"This could reflect the start of some reaction to the further weakening in household disposable income growth in the final quarter of 2013, and more recently an interest rate hike at the end of January," said Loos.
"However, the pace of improvement in this index remains solid, and the Market Strength Index is now very near to 50, where the demand and supply ratings would be 'balanced'. This is arguably reflected in house price growth, which is mildly positive in real terms."
Outlook
In March, the release of the SA Reserve Bank (Sarb) Leading Business Cycle Indicator for January showed further year-on-year decline to the tune of -2%.
Employment growth continues at a snails pace, which has slowed wage bill growth markedly since 2010/11.
Nominal disposable income growth in the fourth quarter of 2013 slowed further to 6.46% year-on-year, now lower than house price growth.
"Then there is the interest rate hiking cycle that this highly credit-driven market may have to deal with," said Loos.
"January saw the 1st 50 basis point rate hike by the Sarb and its Monetary Policy Committee has intimated that, although it didn’t hike last week, there’s probably more to come, with the policy repo rate still on the low side, and negative in real terms."
Expectation
With these factors in mind, along with FNB's expectation that interest rates may rise a little further to where the prime rate ends 2014 at near 10%, Loos believes the pace of market strengthening will slow later in the year, resulting in mild slowing in average house price inflation.
"The extent of the price growth tapering expected would be back down to a rate of 5% to 6% by year-end, slightly below CPI inflation, which is expected to end the year just above 6%," said Loos.
"Finally, the combination of 8.6% house price growth and a slightly higher 9% prime rate should continue to keep the market by-and-large healthy in terms of containing levels of speculative activity."
FNB's alternative measure of real prime rate, using house prices with which to adjust prime rate instead of using CPI, remains slightly in positive territory to the tune of 0.4% in March.
"While only slightly positive, this situation remains highly favourable compared with the 2004/5 period where a strongly negative real rate promoted speculative behavior on a large scale.
This is virtually unchanged from February’s upwardly revised growth rate of 8.6%, reflecting a residential market that remains solid, said John Loos, FNB's household and property sector strategist.
Real house price growth - that is when house prices are adjusted for consumer price inflation (CPI) - came in at 2.48% year-on-year in February. March CPI not yet available.
This represents a slight slowing from revised 2.6% real price growth in January, due to the pace of CPI inflation having quickened a little in February, from 5.8% in January to 5.9%.
The average price of homes transacted was R951 490.
In real terms, the index remained well-above levels of a decade ago, up 26.1% from February 2004.
However, compared with last decade’s real average price peak, reached in December 2007, the February 2013 real price was still -17.3% lower.
In nominal terms, the March 2014 average price was 118.1% higher than the March 2004 price level, but only 20% above the December 2007 level.
Valuers
The FNB Valuers’ Market Strength Index is now getting very near to the crucial level of 50.
This implies that the index has nearly reached a level where the valuers’ aggregated demand rating draws equal in strength with the valuers’ aggregated supply rating.
The Market Strength Index pointed to further improvement in the market demand-supply balance in March 2014, to reach a level of 49.52.
Rising demand rating
The increase in this index continued to be fuelled by the combination of growth in demand along with mounting supply constraints, as reflected in a rising demand rating and declining supply rating.
While the pace of improvement in the Market Strength Index remains strong, recent months’ month-on-month growth (seasonally adjusted) in this index have slowed slightly.
"This could reflect the start of some reaction to the further weakening in household disposable income growth in the final quarter of 2013, and more recently an interest rate hike at the end of January," said Loos.
"However, the pace of improvement in this index remains solid, and the Market Strength Index is now very near to 50, where the demand and supply ratings would be 'balanced'. This is arguably reflected in house price growth, which is mildly positive in real terms."
Outlook
In March, the release of the SA Reserve Bank (Sarb) Leading Business Cycle Indicator for January showed further year-on-year decline to the tune of -2%.
Employment growth continues at a snails pace, which has slowed wage bill growth markedly since 2010/11.
Nominal disposable income growth in the fourth quarter of 2013 slowed further to 6.46% year-on-year, now lower than house price growth.
"Then there is the interest rate hiking cycle that this highly credit-driven market may have to deal with," said Loos.
"January saw the 1st 50 basis point rate hike by the Sarb and its Monetary Policy Committee has intimated that, although it didn’t hike last week, there’s probably more to come, with the policy repo rate still on the low side, and negative in real terms."
Expectation
With these factors in mind, along with FNB's expectation that interest rates may rise a little further to where the prime rate ends 2014 at near 10%, Loos believes the pace of market strengthening will slow later in the year, resulting in mild slowing in average house price inflation.
"The extent of the price growth tapering expected would be back down to a rate of 5% to 6% by year-end, slightly below CPI inflation, which is expected to end the year just above 6%," said Loos.
"Finally, the combination of 8.6% house price growth and a slightly higher 9% prime rate should continue to keep the market by-and-large healthy in terms of containing levels of speculative activity."
FNB's alternative measure of real prime rate, using house prices with which to adjust prime rate instead of using CPI, remains slightly in positive territory to the tune of 0.4% in March.
"While only slightly positive, this situation remains highly favourable compared with the 2004/5 period where a strongly negative real rate promoted speculative behavior on a large scale.
