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Real house price growth has continued to decline and while it is still mildly positive in nominal terms, it remains negative in real terms, John Loos, household and property sector strategist at FNB said on Monday.
Furthermore, Loos says it appears highly likely that 2018, as a whole, will end up showing slower average house price growth than 2017. The average house price growth recorded in 2017 was 4.2% and so far in 2018 the average has been 3.5%.
This year will likely be the third consecutive year of real house price decline in SA, he predicts.
Commenting on the latest FNB House Price Index, Loos said a gradual house price “correction” has been going on since early 2016. Loos says sluggish rates of economic growth over recent years have been insufficient to create enough housing demand to keep the housing market in balance.
The latest data shows that in July 2018 real house price growth - in other words when adjusting for CPI (Consumer Price Index) inflation - had declined -1.2% year-on-year (y/y). CPI inflation was at 5.1% in that month and house price growth at 3.9%.
On a month-to-month (m/m) basis, nominal house price growth slowed for the second month in a row - from the 3.9% in July to 3.5% in August. This was after it had reached 4.1% in June.
Seasonal adjustment
To better evaluate recent house price growth, FNB examined m/m house price growth on a seasonally-adjusted basis. There were four consecutive months of m/m house price growth slowdown: from a high of 0.67% m/m growth in April, it has slowed to 0.08% as at August 2018.
"Based on the performance of house prices in recent years, we believe that, should such a weak growth and rising interest rate environment materialise, this would be insufficient to significantly alter the housing market’s performance from the current low positive single digit house price growth environment," says Loos.
Therefore, FNB forecasts average house price growth to average in a range between 3% and 4% for the forecast period to 2020. This would imply a negative rate in real terms until then.
"To achieve positive house price growth in 'real' terms, we believe economic growth would need to be nearer to 3%, which appears unlikely in the foreseeable future," says Loos.
"On the other hand, we believe a full-blown recession would cause not only 'real' house price decline, but nominal (actual) house price decline too."
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