Home prices drop 21% over 11 years

MIDDLE AND LOWER INCOME SEGMENTS Single-digit price growth is a decline in real terms due to inflation.

In real terms, including the impact of inflation, house prices have declined 20.8% since August 2007 (peak of the pre-2008 boom), according to November’s FNB House Price Index.

FNB’s John Loos says the index remains at “relatively high levels”, considering the longer-run performance (since 2001), but that house prices have effectively been flat for a decade. FNB doesn’t believe this cumulative real price correction to date is sufficient to bring real home values back into line with very weak economic fundamentals.

The 2018 index continues to “hover in low single-digit growth territory not too far from 4% yearon-year (year on year),” says Loos, adding that the low single-digit growth in nominal terms continues to translate into a year-onyear price decline in “real” terms, when adjusting for CPI inflation. Therefore “the gradual housing market price ‘correction’ continues, as it has since early-2016.”

After inflation, house prices are down 1% year-on-year, continuing to decline from 2007’s peak, with the -20.8% figure set to worsen.

Lightstone reports even lower house price inflation, at 3.5% in October (FNB: 4.1%). FNB’s datasets are based on residential properties financed by the bank over 18 years; Lightstone uses Deeds Office data.

Lightstone’s area value band breakdown shows “mid-value” homes (R250 000 to R700 000) far outperforming the market, with 6.1% year-on-year growth in October. High-value homes (R700 000 to R1.5 million) are up 3.3%, low-value homes (under R250 000) up 2.7% in the month. Luxury homes (over R1.5 million) are barely positive in nominal terms, up 0.5% year-onyear. Add in inflation (5.1% in October) and the picture’s decidedly more negative.

The performance of these segments squares with FNB’s research, although it defines its categories with higher average selling prices, ranging from R1.05 million to R6.8 million.

In a separate report, Loos says in the initial stages of the housing market slowdown (2014) the higher-income end appeared to lead the way down. More recently it seems “these segments have been showing signs of ‘relative stabilisation’, albeit at already-weak levels”.

The middle and lower-income segments have been weakening more noticeably from relatively stronger levels.

“This can be a sign that financial constraints and pressures amongst households at the lower end are becoming more significant. Therefore, a key theme in 2019 may be a ‘convergence’ in performance of the various income/ price segments of the housing market, the lower-to-middle end’s relative ‘outperformance’ fizzling out.”

Loos says it appears likely that 2018’s average house price growth rate will be slower, making this the fourth consecutive year of average price growth slowdown. FNB’s valuers continue to see housing demand weakening.

To November, the average house price growth rate was 3.7% (2017: 4.3%; 2013: 6.8%). In 2019, FNB projects 3.7% nominal average house price growth. Given its economics unit’s forecast of 5.3% CPI for 2019, “this would translate into another year of house price decline in real terms”.

Hilton Tarrant works at YFM

Market price correction continues