The FNB House Price Index points to a recent mild strengthening, but this does little to change our moderate expectations

The FNB House Price Index inflation rate for July accelerated mildly, and its recent month-on-month rise in tandem with a mild rise in the Manufacturing PMI (Purchasing Managers Index) up to June possibly hints at one or two slightly better economic months recently. But we wouldn’t hope for too much.


Taking a look at month-on-month fluctuations in the FNB House Price Index, we see a housing market seemingly tracking the small short term fluctuations in the economy.
Although more cyclical than the overall economy, the Manufacturing Sector is typically a good indicator of the direction of overall economic growth.

We statistically seasonally adjust our FNB House Price time series to eliminate the impacts of seasonal factors such as the typically slow winter months, and compare it with the month-to-month movements in the Manufacturing Purchasing Managers Index (PMI).

And on this basis we see the fluctuations in month-on-month house price inflation broadly tracking those of the Manufacturing PMI. So, a dip in the PMI starting early in 2014 co-incided with a softer patch with regard to house price inflation, while stronger month-on-month house price growth came late last year as the PMI, and indeed economic growth, recovered somewhat.

Then, early this year, the PMI dipped once again, as did quarter-on-quarter economic growth in what was a disappointing start to 2014. Month-on-month house price growth more-or-less followed suit from a high of 0.8% in October last year to 0% in February 2015.

Moving into the 2nd quarter of this year, however, house price growth accelerated a little once more to reach 0.7% by July 2015, co-inciding with the Manufacturing PMI returning to above 50, the crucial level above which signifies positive growth in this sector, in May and June.

The bottom line is that there is nothing “different” about the residential property market relative to the economy at present. It appears “sane and rational” and broadly tracking economic fluctuations, although it is far from being an exact science. That is healthy in a way, as residential property is just another part of the economy. But given that, despite periodic small fluctuations, the economy appears far from healthy overall, it can be a cause for concern.

The vague PMI hint at a slightly better one or two manufacturing and economic months around mid-year, after a very weak start to 2015, and the corresponding acceleration in average month-on-month house price inflation, has translated a mild acceleration in year-on-year house price inflation too (July average price compared with July a year ago).

According to the FNB House Price Index, the average house price for July 2015 rose 5.9% year-on-year. This is higher than the previous month’s revised 5.5%.

Given that Consumer Price Index (CPI) inflation recorded only 4.7% in June, real house price growth in that month measured +0.7% year-on-year, and it is likely that July also recorded a positive real house price growth rate.

The average price of homes transacted in March was R1,009,504


Examining the longer term real house price trend (house prices adjusted for CPI inflation), we see that despite some rise in recent years, (+4.7% since the October 2011 low) the average real house price level remains -18.7% below the high reached in December 2007 at the back end of the residential boom period.

Looking back longer though, the average real price remains 66.2% above the January 2001 level, a time back just before boom-time price inflation started to accelerate rapidly.

Real house price levels thus remain at “boom time” levels in our view, despite having lost some ground since the end of 2007.

In nominal terms, when not adjusting for CPI inflation, the average house price in July 2015 was 274.5% above the January 2001 level.


Although many high frequency economic indicators have not pointed to any noticeable improvement in the 2nd quarter of 2015, after a dismal 1.3% GDP growth rate for the 1st quarter, the Manufacturing Purchasing Managers Index did point to some mild improvement in May and June. The FNB House Price Index’s growth rate, when measured on a month-on-month basis, appears to have moved broadly in tandem with the PMI to a higher level.

Does this point to a slightly better economic performance in recent months? Possibly, but we would expect it to be short-lived in duration. Global commodity prices continue to be under pressure, with China’s economic situation looking bleak, and the turbulent news from both the mining sector as well as the Steel Manufacturing Sector point to troubled economic times ahead as companies move to cut costs, which include laying off staff or even closures in some cases. It is therefore questionable as to how long the PMI can remain above 50, or for how long month-on-month house price inflation can accelerate.

The year-on-year house price inflation rate for 2015 to date is 5.5%, and our forecast remains 5.5% for the year as a whole, suggesting the we expect to soon see some mild slowing in the pace from July’s 5.9%. The 2015 forecast rate is slower than the 7.1% rate recorded for 2014. In addition to global economic pressures, the Reserve Bank (SARB) resumed its slow pace of interest rate hiking in July, and we expect another 2 x 25 basis point Repo Rate hikes before the year is out. Interest rate hikes are normally a dampener on growth in such a credit driven market.

Read more here: FNB Property Barometer_July_2015 House Price Index_3_August_2015