Renewed economic weakness in store for SA's housing market | Fin24
 
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Renewed economic weakness in store for SA's housing market

Jul 03 2017 18:47

Cape Town – House price growth slowed for the third consecutive month in June pointing to a period of renewed economic weakness in the sector, John Loos, household and property sector strategist at FNB, said in a company note.

In June 2017, the FNB House Price Index – compiled from 18 sub-segment average house price time series - showed year-on-year growth of 3.6%, slightly higher than May’s 3.3% growth.

However in real terms, when adjusted for inflation, the rate of house price growth remained in negative territory, having recorded a -2.0% year-on-year decline in May. Data for June is not yet available.

The average price of homes transacted in June was R1 102 190.

READ: Economy weighs heavily on housing market 

Examining house price growth on a month-on-month, seasonally adjusted basis suggests that a period of renewed economic weakness may once again be emerging after the first quarter of 2017 had shown certain signs that a slightly stronger economy may be approaching,” Loos said.

The housing market is often a good leading indicator of economic conditions in the country. From April to June, 2017 house prices have shown slower month-on-month growth.

“Ongoing market weakness should not be surprising,” Loos said in reference to weak sentiment returning in the second quarter on the back of South Africa’s credit ratings downgrade to junk status.

“We continue to project a lowly 3% average house price growth for 2017 as a whole."

Loos said the four noticeable dips in the purchasing managers' index (PMI) are also a reflection of the broader economic direction, and show a close correlation with the month-on-month dips in house price growth.

Fin24 earlier reported that PMI in May fell for the fourth time in five months.

READ: SA business confidence tanks 

The RMB/BER Business Confidence Index also reached an eight-year low of 29 (on a scale from 0 to 100) in the second quarter of 2017, showing that business confidence plummeted to levels of despondency last seen during the 2009 recession.

Price decreases in home re-sale environment

During times when the market is weak and average house price inflation low, it would be realistic to expect a higher percentage of homes to be resold at deflated prices.

In May, the level of resale price deflation was at 10.2% of total sales. It is however far below the 23.4% measured in September 2009, when the economic crisis was at its peak.

The percentage of homes resold for 10% or more above purchase price has begun to decline slightly – from 78.3% for the six months to August 2016 to 77.2% for the six months to May 2017, which is a sign that “price power” among home sellers is diminishing mildly.

Similarly, there has been an increase in the estimated percentage of homes resold at values closer to their purchase price. 

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