House prices surprise on upside

Johannesburg - Economists may have been a tad too bearish about recovery prospects in the residential property market, with First National Bank (FNB) now the second bank having to adjust its house price growth forecasts upwards.

Figures released by FNB on Tuesday showed the bank's house price index returned to positive growth territory in November for the first time in a year. The index, which is based on FNB's own mortgage book, recorded an unexpected 2% jump in average house prices in November year-on-year. In October prices were still falling by -0.9%.

FNB strategist John Loos said he had not expected house prices to start rising again before early 2010. The fact that the housing market appears to be recovering at a quicker pace than previously anticipated prompted him to adjust his 5% growth forecast for 2010 upwards to between 7% and 8%.

Said Loos: "It now appears that our previous price growth forecast for 2010 may have been slightly on the conservative side." The return of FNB's house price index to positive growth follows that of Absa, which resumed annualised house price growth in September already. The bank recorded a rise of 1.3% in that month, followed by a relatively strong 2.6% in October year-on-year.

Although Absa's housing data for November will only be released later this week, the bank's senior housing analyst Jacques du Toit has already adjusted his growth forecasts upward. "Given recent house price trends, it's possible that price deflation for the full 2009 will be less than 1.5%."

In early September, Du Toit was still expecting a 3% drop in average house prices for 2009. His growth forecast for 2010 is slightly less bullish than that of Loos, with expected growth of 3%.

More homeloans approved

Standard Bank is the only bank whose property book is still recording price falls. Data released on Tuesday show the bank's house price index recorded a drop of -4.5% in November year-on year, a slight improvement from October's -4.6% decline.

However, it appears that Standard Bank's continued prices declines could be ascribed to the methodology used to measure house price movements. Standard Bank tracks median house prices, while FNB and Absa track average prices.

Standard Bank senior economist Johan Botha said it appears that more lower-priced properties were sold in November than in October, which probably skewed median prices downwards. Standard Bank's median house price came to R550 000 in November, compared to FNB's R773 018 and Absa's R991 200 (October).

Botha said there is no doubt that prospective homebuyers are returning to the market, and that the more relaxed lending criteria announced by banks in early September had already led to more homeloan application approvals.

Latest Reserve Bank figures show that Absa is still the biggest player in SA's R713.2bn mortgage lending market with a 29.8% share, followed by Standard Bank at 27.2%, Nedbank at 21.5% and FNB at 15%.

- Fin24.com