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Average house price growth likely to slow again - index

Sep 05 2017 15:35

Cape Town - It seems increasingly likely that 2017 will be the third consecutive year of slowing average annual house price growth, according to the latest FNB House Price Index.

Furthermore, it will likely be the second consecutive year of house price decline in consumer inflation-adjusted real terms, according to John Loos, household and property sector strategist at FNB.

He said there are indications that the slow real house price correction is continuing, with "real" referring to the average house price after it is adjusted for inflation.

The average price of homes transacted in August was R1 103 322.

Expect a mild increase in average house price inflation in 2018 and again in 2019, according to Loos.

"After a forecast average of 3% for 2017, we project a mild acceleration to an average of 4.7% in 2018 and 5.2% in 2019 - based on FNB macroeconomic forecasts," he said on Monday.

The forecasts project a mild acceleration in real economic growth in 2018 to 0.9%, from an expected 0.5% for 2017, and a further rise to 1.3% in 2019. This small growth acceleration in 2018 is expected to be driven by some strengthening in the global economy’s growth rate.

"On top of this, we have had one 25 basis-point interest rate cut in 2017 to date and expect one further 25 basis-point cut before 2017 is out. This could provide some further mild stimulus to housing demand heading towards 2018," said Loos.

Index

In August the FNB House Price Index showed a mild acceleration in year-on-year (y/y) growth compared with revised July growth. However, at 4% y/y the rate of increase remains in lower single-digit territory, as FNB expected it would do through 2017. This is a mild acceleration from the revised 3.5% for July.

For the period January to August 2017, the average y/y growth rate in the FNB House Price Index was 3%. This is in line with a 3% average price growth forecast for the entire 2017. It is lower than the revised 4.9% recorded for 2016, and well down on the post-2008/2009 recession high of 7% reached in 2014.

In real terms, the average y/y rate of decline was -3.1% for the period January to July 2017, a weakening from the -1.3% average rate of decline for 2016 as a whole.

In real terms the house price correction gradually continued, with the real rate of house price growth remaining in negative territory with a -1.0% y/y decline in July. August consumer price index (CPI) data is not yet available.

This is a diminished real house price deflation rate, however, from -1.7% y/y in June and from a low of -4.8% reached in December 2016.

According to Loos, this diminished real price decline in July was the combination of slight acceleration in the house price inflation rate of that month from 3.3% in the prior month to 3.5%, along with a deceleration in CPI inflation from 5.1% in June to 4.6% in July.

House price growth on a month-on-month seasonally-adjusted basis - a better momentum indicator than the y/y calculation, according to Loos - has suggested a recent period of greater economic weakness. The month-on-month seasonally-adjusted house price growth rate slowed from a 0.82% high in March to 0.32% in July. In August, however, there was a slight increase to 0.35%.

"An accelerating trend in month-on-month growth can often mean a slightly better period for the economy emerging, although we would not conclude this from only a one-month acceleration to date," said Loos.

"Hopefully, the slight August rise in this growth rate is a sign of slightly better economic times to come, but a few more months of house price data will be required before we would conclude that this is the case."

Longer term

Looking a bit further back to the all-time real house price peak at the end of 2007 - at the end of the pre-2008 housing boom period - on a cumulative basis, real house prices were -19.2% down on that high as at June 2017, according to Loos.

Looking back further, the average real price currently remains 64.0% above the end-2000 level - a time back just before boom-time price inflation started to accelerate rapidly.

In nominal terms the average house price in August 2017 was 318.3% above the end-2000 level. By comparison, consumer goods and services prices, as measured by the CPI, were only 154.5% higher over virtually the same period (up to July 2017 due to August CPI data not yet being available).

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