May house price growth shows further acceleration

May house price growth shows further acceleration. But for how long in a weak economic environment?

The renewed acceleration in house price growth, which resumed early in 2013 after a lull late in 2012, continued in the May version of the FNB House Price Index.

The average house price for May showed year-on-year growth of 5.8%, up from April’s revised 5.4%.

The average value of homes transacted in the FNB House Price Index was R885,773.

In real terms (adjusting house prices for general inflation in the economy using the CPI), as at April there was a very slight year-on-year decline to the tune of -0.4%, with consumer price inflation at 5.86% year-on-year in that month still slightly higher than house price inflation.

Evaluating longer term performance of the FNB House Price Index, in real terms the index is -19.2% down on last decade’s real price peak reached in November 2007, while in nominal terms it is a mere 14.9% higher.

However compared to May 2003, 10 years ago, the index is up 49.8% in real terms and 151.9% in nominal terms, suggesting that the price effects of last decade’s residential demand boom have far from worn off, despite a significant downward real correction since late-2007.


Turning to the FNB Valuers’Market Strength Index, FNB’s Valuers have indicated that recent relative market strength has been the result of the combination of positive residential demand growth as well as a little more constrained supply of residential stock on the market.

Since early-2012, the FNB Valuers’ Market Strength Rating Index has shown gradual positive year-on-year growth after a 2011 decline. It remains below the crucial level of 50, at 46.33, implying that the residential demand rating at 49.5 is still weaker than the 56.8 Residential Supply Rating, arguably explaining why there has not been strong house price growth in real terms.

On a month-on-month seasonally adjusted basis, however,  the valuers perceive positive month-on-month growth in demand and month-on-month declines in supply in recent months, narrowing the gap between supply and demand.


In the 2nd largest economy within the Common (Rand) Monetary Area, i.e. Namibia, FNB’s Namibia Average House Price shows a slightly better situation than in South Africa. Namibia has experienced a stronger economic growth rate than South Africa in recent times. In addition, its major residential market, Windhoek, experiences significant vacant land constraints and thus more constrained supply, it would appear, than SA’s cities.

The apparent result is that, while the shape and direction of Namibia’s cycles don’t look too dissimilar to SA, the magnitude of its house price growth has been better of late, with its 1st quarter average house price growth estimated at 15.8%, impressive compared to South Africa’s lower 5.2% as at the 1st quarter of this year.


The broadly improved period of domestic house price growth since late-2011/early-2012 is not totally out of kilter with economic and housing market developments in the world’s largest economy through last year and early-2013, where March saw the US Case-Shiller House Price Index reaching growth of 10.9% year-on-year, after a steady acceleration from a state of negative growth back in 2011.

But there are recent some ominous signs emerging for the local residential market emanating from a somewhat “pressured” domestic economy. In foreign currency-denominated terms, the FNB House Price Index reflects a very different picture, i.e. a domestic residential market dropping in value, as a result of a steady recent deterioration in investor sentiment which has seen a major weakening in the Rand.

In dollar terms, the May FNB House Price Index declined year-on-year by -6.9%, in Euro terms by -8.4%, and by -3.4% in UK Pound terms. South African property has thus recently become significantly cheaper for aspirant foreign buyers. Will this attract a higher number of foreign buyers? This remains to be seen, but this is not expected, as the cheaper domestic property is a result of a deterioration in investor sentiment it would seem. [Read More – And View the Full FNB Report Here]

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