A Peak and a Forecast by Lightstone

Lightstone, a provider of comprehensive data, analytics and systems on property, automotive and business assets, explores the current status of national house inflation in South Africa.

It is important to know when house price growth will peak as it is a good indicator of possible shifts in buyer, seller and speculator behaviour. South African year on year national house price inflation has steadily been increasing since September 2011 from about 3.2% to 5.4% currently. But is this continual increase in house price inflation slowing down and reaching a peak?

Andrew Watt, Managing Director of Lightstone, says that house price growth does not seem to have changed very much in the past five months. Yearly house price inflation has actually increased from 5.01% in July 2012 to 5.4% in November 2012 and peaked at 5.43% in October 2012.

Is it possible that house price growth reached its maximum in October 2012 and will house prices be growing at a slower rate in the coming year?

Lightstone tracks not only national house price inflation but also house price inflation of different wealth segments namely the affordable, mid value, high value and luxury value wealth segment. In the past it has been observed that house price inflation in the luxury and high value wealth segments peaked before the mid value wealth segment.

Watt explains, “during the housing boom of 2005, house price inflation was at its highest in the luxury segment in June 2004. Conversely house price inflation was the highest in October 2004 and April 2005 in high value and mid value wealth segment respectively.”

It can therefore be said that luxury house price inflation can be seen as a leading indicator for national house price inflation.

Lightstone notes that house price inflation in the luxury wealth segment has increased from 4.27 % in May 2012 to 4.34 % in November 2012 with a peak of 4.81% in August 2012. Since the luxury wealth segment peaked, it is likely that the current peak in national house price inflation is accurate.
What is the 2013 outlook on national house price inflation assuming that it has now peaked?

With speculation activity currently more subdued than during the housing boom of 2005, the main factors currently driving house price inflation is economic growth (GDP growth), CPI inflation and interest rates.

Evaluating these macro-economic factors, Lightstone forecasted in the beginning of 2012 that house price inflation would be around 5.2 % and in the range of 4.1% to 6.2% for the following year. Looking back at last year, the latest house price inflation as at November 2012 (ignoring the last three months of transactions due to lags in the deeds registration process) is about 5.4%.

Economic conditions for 2013 should remain similar to that of 2012 even though GDP growth forecasts for 2013 might be slightly more subdued. CPI inflation is currently in the area of 5.5% and within the acceptable range of between 3% and 6% as targeted by the South African Reserve Bank. It is assumed that CPI inflation will remain within the range for the majority of 2013 and would not spur the Reserve Bank to make any major interest rate changes in 2013.

“Since it is expected that economic conditions will remain constant in 2013 it is expected that house price inflation will not increase and remain relatively stable. The expected year on year house price inflation is about 5.9 % and within the range of 5.0% and 6.8%. This forecast will however be reviewed during the year as the economic environment changes”, comments Watt.

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