January 2015 House Price Index Finding (FNB)

The market remains solid, and house price growth in excess of Consumer Inflation, but we’re still waiting for some possible strengthening effect from the big oil price drop.

At 6.64% year-on-year growth in January, the FNB House Price Index continues to “amble along comfortably” a little above Consumer Price Inflation. The rate continues to reflect a solid and very well-balanced housing market. However, we still expect the supportive impacts of the late-2014 oil price crash to feed through in the coming months via the strengthening impact on the economy and on Real Household Disposable Income growth. As such, we foresee some mild near term strengthening in house price inflation.

According to the FNB House Price Index, the average house price for January 2015 rose 6.64% year-on-year. This is very slightly slower than the previous month’s revised 6.7%, as well as meaning that we go into 2015 with a slower year-on-year house price inflation rate than the 8.53% year-on-year rate of January a year ago.

Real house price growth (i.e. when house prices are adjusted for consumer price inflation), remained positive to the tune of 1.31% year-on-year in December (January CPI not yet available), helped on by some recently slower CPI inflation, which measured 5.3% year-on-year in December and looks set to drop like a stone as lower oil prices impact.

The average price of homes transacted in January was R991,610.


Perhaps interesting is that the FNB House Price Index, adjusted to real terms using the CPI, has made virtually zero progress in terms of net increase on the levels of almost exactly 10 years ago.

Late-2004/early-2005 was the point where the house price growth boom of last decade reached some of its strongest rates in recorded history, with real house price growth in excess of 30%.
Examining the longer term performance over the 10 year period since then, in real terms the index is a virtually insignificant 0.4% above the end-2004 level, although still 75.4% higher in nominal terms compared with January 2005.

But long term averages can of course be misleading as to what has happened in between now and then, of course. From December 2004 up until December 2007, house prices in real terms measured another +21.3% cumulative rise up until the end of 2007. Then, the post-Boom slump saw them decline by -22.8% cumulatively in real terms from end-2007 to October 2011, before the more recent period of “relative strength” saw some modest cumulative real rise of +7.2& from November 2011 to December 2014. In short, it has been something of a rollercoaster ride to get back to where we were 10 years ago in real price terms, with the next effect over exactly 10 years being virtually zero.


The FNB Valuers’ Market Strength Index continues to point to a strengthening residential market, and the positive house price growth in real terms is reflective of this.

The Valuers as a group, have for much of the past 3 years perceived a rise in demand along with deteriorating supply of residential stock, the perfect recipe for an improving balance between demand and supply. The index scale is zero to 100, and a level of 50 indicates a balanced market, with the Residential Demand Rating equaling the Residential Supply Rating.

Significantly, therefore, the Market Strength Index rating is now above the key 50 level, recording 50.4 as at January, slightly higher than December’s revised 50.36.


As yet, the FNB House Price Index does not appear to reflect any signs of the recent significant improvements to South Africa’s economic prospects. At 6.64% year-on-year growth in January, the Index continues to “amble along comfortably” little above Consumer Price Inflation, and positive real house price growth continues to reflect a very well-balanced housing market.

But we have recently come to expect slightly more in 2015, due to significantly improved economic prospects. These improvements come largely in the form of sharply lower oil prices of late, and to a lesser extent a decline in global food prices too. While the lower oil prices are a negative for those countries producing oil, they promise to be a big positive for the world’s heavily Consumer-driven nations of which South Africa is one.

As such, we project a mildly faster real economic growth rate in 2015, compared to a weak 2014. We also project CPI inflation to drop “like a stone” to average 3.5% in 2015, down from 6.1% in 2014. Lower inflation and faster economic growth can have 2 key impacts. Firstly, it leads us to the forecast of a faster rate of Real Household Sector Disposable Income growth, accelerating from an estimated 1.5% in 2014 to 2.8% this year. Secondly, our interest rate forecast has been revised of late, and whereas we had previously expected the SARB (Reserve Bank) to lift rates slightly this year, we now forecast no rate hikes for the entire 2015.
The combination of these positive factors, we believe, will still see some mild acceleration in average house price inflation this year, taking it higher into the 8-9% range.

As always, though, much remains dependent on the ability of the country’s troubled Electricity Sector not to disrupt the economic show too heavily, while the country’s fragile labour relations also pose an ongoing economic disruption risk.