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House price growth to stay in narrow range

Nov 01 2016 18:15
Carin Smith

Cape Town - The forecast is for nominal house price growth to remain in a relatively narrow range of between 3.5% and 4.5% in 2016 and 2017, Jacques du Toit, property analyst at Absa Home Loans, said on Tuesday.

Real price deflation of between 1.5% and 2.5% is projected over this period, taking account of the outlook for headline consumer price inflation.

Nominal year-on-year growth in home values, based on Absa’s house price data, slowed down further in the third quarter of 2016, whereas prices deflated in real terms across most segments. These house price trends were the result of a range of developments on the economic and consumer front during the year, according to Du Toit.

Price growth in respect of affordable housing (homes of 40m² to 79m² and priced up to R600 000 in 2016) slowed down further to a nominal 2.9% year-on-year (y/y) in the third quarter of the year, from 3.9% y/y in the second quarter. This brought the average price of a home in this segment of the market to around R425 000, with price growth on a downward trend since the fourth quarter of last year.

In real terms, prices dropped by 2.9% y/y in the affordable segment in the third quarter.

READ: Where to with house prices in SA?

Average nominal price growth in middle-segment housing (homes of 80m² to 400m² and priced at R4.4m or less in 2016) tapered off to 3.6% y/y in the third quarter of 2016 (5.4% y/y in the second quarter), with these properties priced at around R1 414 000 in the quarter.

Real price deflation accelerated to 2.3% y/y in the third quarter from a drop of 0.8% y/y in the preceding quarter, with inflation-adjusted price growth on a downward trend since the first quarter of last year.

Price changes in the three middle segment categories in the third quarter of 2016 were mall houses (80m² to 140m²) at 6.2% nominal and 0.2% real; medium-sized houses (141m² to 220m²) at 5.1% nominal and -0.9% real; and large houses (221m² to 400m²) at 3.0% nominal and -2.8% y/y real.

The segment for luxury housing (homes priced at between R4.4. and R16.3m in 2016) saw the average nominal price rising 9.0% y/y to a level of R6.5m in the third quarter of 2016. In real terms, the average price of a luxury home was up by 2.8% y/y in the third quarter of the year.

READ: Be aware of potential price decline of your home

In the third quarter of 2016 the average nominal price of a new house increased sharply by 16.1% y/y to R2 020 200, after increasing by 9.0% y/y in the second quarter.

In real terms, price inflation of 9.5% y/y and 2.6% y/y was recorded with regard to new housing in the third and second quarters respectively.

The average price of an existing house increased by a nominal 3.5% y/y to a level of about R1 390 700 in the third quarter of the year, with some real price deflation of 2.4% y/y recorded. Nominal year-on-year growth in the average price of existing homes has been on a slowing trend since the fourth quarter of 2014.

"The price trends in respect of new and existing housing imply that it was about R629 500 or 312% cheaper to have bought an existing house than to have had a new one built in the third quarter of 2016," said Du Toit.

The FNB House Price Index for October 2016 rose by 2.4% year-on-year. This is a further slowing on the revised 3.5% rate recorded for September, and the 6th consecutive month of price growth slowing, John Loos, household and property sector strategist at FNB said on Tuesday.

The pace of slowdown in year-on-year house price growth has sped up in recent months. As recently as April, average house price growth was a significantly stronger 6.9%, so the slowdown in recent months has been significant, according to Loos.

Examining house price growth on a month-on-month basis, FNB sees the onset of some deflation, to the tune of -0.44% in October.

In real terms, when adjusting for CPI (Consumer Price Index) inflation, the rate of house price growth has turned negative to the tune of -2.5% year-on-year in September (October CPI data not yet available), after a -1.1% decline in August.

The average price of homes transacted in October was R1 053 925.

The FNB Valuers’ Market Strength Index (MSI) remains above 50. However, the level has been declining as the Valuers Demand Rating drops.

"The significant pace of slowdown in year-on-year house price growth has meant that rental inflation has overtaken house price growth. This, in turn, has led to the onset of a decline in the house price-rent ratio in recent months," said Loos.

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