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Johannesburg - The residential market picture remains one of “stability but no fireworks”, according to the FNB House Price Index for September.
"Average house price growth continues to more-or-less keep pace with general inflation in the economy, implying virtually no movement in real price levels," said John Loos, FNB's household and property sector strategist.
The index showed a further slight acceleration in its year-on-year growth rate, from a previous month’s revised 6.3%, to 6.6% in September.
"While not a rapid acceleration, it represents the third consecutive increase in house price growth since the 6% rate recorded in June," said Loos.
The average value of homes transacted in the index was R900 907.
"In real terms (adjusting house prices for general inflation in the economy using the CPI), as at August we were seeing virtually no year-on-year change," he said.
"There is only a very slight -0.11% decline to be precise, with the consumer price index recording inflation of 6.4% in that month, slightly higher than the 6.3% CPI rate of July."
Compared to September 2003 - 10 years ago - the index is up 35.5% in real terms and 137.5% in nominal terms.
According to Loos this still suggests that the full price effects of last decade’s residential demand boom haven’t yet worn off.
Looking at the more recent past, however, in real terms the index is -20.2% down on last decade’s revised real price peak reached in December 2007.
In nominal terms it is a mere 14.7% higher, reflecting a partial price “correction” following the boom years.
Supply and demand
According to the FNB Valuers’ Market Strength Index, FNB’s valuers continue to explain the recent relative market “stability with mild improvement” as the combined result of positive residential demand growth as well as a more constrained supply of residential stock on the market.
The decision by the South African Reserve Bank (Sarb) in September to once again to keep interest rates unchanged, was a positive move from a residential market “sanity” point of view, according to Loos.
"We say this because the current prime lending rate of 8.5% remains above house price growth," he said.
"Our alternative calculation of real prime rate, using house price growth instead of consumer prices to adjust prime from nominal to real terms, shows a positive real prime rate of 2.4%."
This limits any potential for short term speculative behavior, or for perhaps “irrational” buy-to-let buying decisions based on recent capital growth trends as opposed to income stream, in his view.
"Not surprisingly, therefore, our indicators of buy-to-let buying, and growth in number of home-owners with 2nd properties, remain weak and primary residential demand is 'king'," said Loos.
"Mediocre household income and consumption numbers should point to mild demand growth at best. The question then remains as to how rapidly the residential building sector can respond in increasing supply of new stock."
The second quarter saw a noticeable increase in the number of residential units’ plans passed (15.8% year-on-year), suggesting to Loos a more rapid rate of completions to come.
"This contributes to our view that we are unlikely to see a significant rise in house price growth from here onward in the near term," he said.
- Fin24
"Average house price growth continues to more-or-less keep pace with general inflation in the economy, implying virtually no movement in real price levels," said John Loos, FNB's household and property sector strategist.
The index showed a further slight acceleration in its year-on-year growth rate, from a previous month’s revised 6.3%, to 6.6% in September.
"While not a rapid acceleration, it represents the third consecutive increase in house price growth since the 6% rate recorded in June," said Loos.
The average value of homes transacted in the index was R900 907.
"In real terms (adjusting house prices for general inflation in the economy using the CPI), as at August we were seeing virtually no year-on-year change," he said.
"There is only a very slight -0.11% decline to be precise, with the consumer price index recording inflation of 6.4% in that month, slightly higher than the 6.3% CPI rate of July."
Compared to September 2003 - 10 years ago - the index is up 35.5% in real terms and 137.5% in nominal terms.
According to Loos this still suggests that the full price effects of last decade’s residential demand boom haven’t yet worn off.
Looking at the more recent past, however, in real terms the index is -20.2% down on last decade’s revised real price peak reached in December 2007.
In nominal terms it is a mere 14.7% higher, reflecting a partial price “correction” following the boom years.
Supply and demand
According to the FNB Valuers’ Market Strength Index, FNB’s valuers continue to explain the recent relative market “stability with mild improvement” as the combined result of positive residential demand growth as well as a more constrained supply of residential stock on the market.
The decision by the South African Reserve Bank (Sarb) in September to once again to keep interest rates unchanged, was a positive move from a residential market “sanity” point of view, according to Loos.
"We say this because the current prime lending rate of 8.5% remains above house price growth," he said.
"Our alternative calculation of real prime rate, using house price growth instead of consumer prices to adjust prime from nominal to real terms, shows a positive real prime rate of 2.4%."
This limits any potential for short term speculative behavior, or for perhaps “irrational” buy-to-let buying decisions based on recent capital growth trends as opposed to income stream, in his view.
"Not surprisingly, therefore, our indicators of buy-to-let buying, and growth in number of home-owners with 2nd properties, remain weak and primary residential demand is 'king'," said Loos.
"Mediocre household income and consumption numbers should point to mild demand growth at best. The question then remains as to how rapidly the residential building sector can respond in increasing supply of new stock."
The second quarter saw a noticeable increase in the number of residential units’ plans passed (15.8% year-on-year), suggesting to Loos a more rapid rate of completions to come.
"This contributes to our view that we are unlikely to see a significant rise in house price growth from here onward in the near term," he said.
- Fin24
