The FNB Area Value Band House Price Indices are insightful in providing an idea of the relative performances across areas, grouped by average price levels of those areas, in the 6 major metros of South Africa (Tshwane, Joburg, Ekurhuleni, Ethekwini, Nelson Mandela Bay and Cape Town).
Of late, the relative performances seem to point to the high end of the market having slowed the most noticeably, which in turn seems to be broadly in line with what the survey respondents in the FNB Estate Agent Survey have been telling us too. In that survey, what agents term the “High Net Worth” Area Segment had shown the most noticeable softening in reported activity levels for some time, so it would not be surprising to have witnessed the most noticeable softening in average house price growth on the high end of the market too.
Using Deeds data transactions by individuals, the 4 FNB House Price Indices are compiled by Major Metro Area Value Band, namely Upper Income Areas (Average house price = R2.72m), Middle Income Areas (Average Price=R1.479m), Lower Middle Income Areas (Average Price = R900,323) and Low Income Areas (Average Price = R472,848).
On a year-on-year basis, it is evident that the Upper Income Area Segment’s average house price growth has slowed from 10.2% back in the 3rd quarter of 2014 to 5.1% by the 4th quarter of 2015. Through 2013 to early-2015, this segment had the highest price growth of all 4 segments, as the high end played “catch up” to the lower priced segments. But, more recently, from the highest base, this segment has shown the most noticeable slowing in growth through 2015 to date, although still experiencing slightly stronger year-on-year price inflation than the Low Income Areas Value Bands’ 4.6% rate. By comparison, the Lower Middle Income Area Segment inflated by 5.5% year-on-year, while the Middle Income Area Index showed the strongest average price growth of 6.7%.
There did, however, appear to be some “relative strength” build-up late in 2014 in the Lower and Lower-Middle Income Areas. On a year-on-year basis, the Lower Income Segment’s price inflation rate more or less held its own in the 4th quarter, with its rate of 4.6% being unchanged from the previous quarter, while the Lower-Middle Income segment was the only one whose rate represented a mild rise on the previous quarter.
By comparison, it was the Middle and Upper Income Areas who had both seen their year-on-year rates slowing in the 4th quarter.
And on a quarter-on-quarter basis, a better indicator of very recent growth momentum, the price growth rates of both the Lower and Lower-Middle Income Areas had actually accelerated to where the Lower Income Area inflation rate drew level with the slowing rate of Middle Income Areas, while the Lower-Middle Income Areas’ quarter-on-quarter inflation rate was the highest of the 4 segments at 1.6%.
On a quarter-on-quarter basis, therefore, the Lower-Middle Income Area price growth rate has taken over from the Middle Income Areas’ rate as the strongest one. In short, something of a shift in “relative strength” has been taking place from higher end towards the lower priced end.
Where too from here? As mentioned previously, our more current monthly FNB National House Price Index pointed to a brief period of renewed year-on-year price growth acceleration as it headed towards the final quarter of 2015. These area value band indices utilize Deeds data, which can lag our FNB’s data, but may be suggesting that the brief acceleration in the national index was driven by the Lower-Middle and possibly Lower income end of the residential market.
This mild swing in relative performances of area value bands is very much in line with the perception that the impact of a weakening economy, along with rising interest rates, is driving a search for affordability among an increasing portion of home buyers, which should, relatively speaking, lay into the hands of the lower priced area end of the market.
It also ties in with what the FNB Estate Agent Surveys have been showing of late, i.e. that the relative strength in activity levels has been found in their equivalent of our Lower-Middle Income Areas.
However, a strengthening in price growth at the lower end is not expected to continue for any significant length of time. Ultimately, buyers in these segments should also begin to become more financially constrained as the impact of a multi-year deterioration in the economy, along with rising interest rates, is felt.
Read more here: Property_Barometer_ Area Value Bands_Feb_2016