House price growth is still slowing

HOUSE price growth in South Africa continues to slow, and could potentially be less than 2% over the next 12 months.

This is despite a slight increase in house price growth from August to September.

According to the latest FNB House Price Index, house prices rose by 4.1% year-onyear in September 2017, which is a mild increase from the revised 3.8% for August.

But FNB’s John Loos says the month-on-month seasonally adjusted growth calculation is a “better momentum indicator” and suggests that, overall, house price growth is slowing, constrained by an economy “battling to achieve any meaningful growth”.

In real terms, he says, when adjusting for Consumer Price Index (CPI) inflation, the house price correction gradually continued, with the real rate of house prices continuing to decrease by about 0.9% yearon-year in August.

September CPI data is not yet available for this adjustment.

The average price of homes transacted in September was R1 102 394, compared to R1 103 322 in August, the index says.

While the year- on- year house price growth rate still shows a slight increase, Loos says a better way to be up to date on the most recent growth momentum is to view on a month- on- month seasonally adjusted basis.

“Calculating house price growth on this basis we see a resumption of the slowing price growth trend, which started in April 2017, after a very brief pause for August.

“The month- on- month house price growth rate was a low 0.13% for September, down from the prior month’s 0.25% and now well down on the 2017 high of 0.82% in March.”

Loos says this most recent slowing house price growth trend again “broadly coincides” with a marked dip in the Absa Manufacturing Sector Purchasing Managers Index, suggesting that it is reflective of a renewed economic “dip” after a brief economic growth improvement in the second quarter of 2017.

“Not only does the recent slowing month- on- month house price growth rate point to possible renewed weakening in the economy, but also to the likelihood that year- on- year house price growth may soon begin to slow once more.”

If one were to annualise the most recent 0.13% month- on-month rate, and, hypothetically, house price growth remains at this September rate, this means that, in the next 12 months, the overall growth in this period would be “a mere” 1.61%.

“It thus appears likely that single- digit average house price growth will continue in the near term, and that the house price ‘ correction’ will continue in the form of a further price decline in real terms – adjusted for CPI.”

So 2017 remains on course for being a slower price growth year than the previous three years. In 2014, house price growth was 7%, in 2015 it was 6.2% and in 2016 it was 4.9%.

Echoing Loos, Erwin Rode, property economist at Rode & Associates, says he has been predicting the decline of real prices “for some time”.

“The reason for the decline in inflation- adjusted prices is that prices haven’t really corrected since the financial crisis, and are, therefore, still high in real terms. Thus, with a stalling economy, affordability is becoming a reality.”

Rode predicts this negative trend will last for several years.