Property Barometer – FNB House Price Index shows a mild uptick in growth – May 2016

In May 2016, the FNB House Price Index recorded a 7.4% year-on-year rate of increase, which is slightly faster than the 7.0% revised rate of the prior month.

Given CPI (Consumer Price Index) inflation of 6.2% in April, in real terms average house price inflation was a modest 0.7% year-on-year in that month, reflecting a still-well balanced market.

Higher nominal house price inflation may be partly the lagged effect of a shift to a higher economy-wide inflation environment since a year ago. However, it may also reflect a slightly better economic environment in the 2nd quarter of 2016, after a dismal start to the year in the 1st quarter. Furthermore, we believe that the national house price growth average currently receives strong support from the Western Cape region, which has bucked the slowing trend recently observed in other provinces to record double-digit house price growth early in 2016.


The FNB House Price Index for May 2016 rose by 7.4% year-on-year. This is slightly faster than the revised 7.0% rate recorded for April, implying an acceleration in nominal house price growth for the past 4 months using the latest revised data.

In real terms, when adjusting for CPI (Consumer Price Index) inflation, however, the rate of house price growth remains not too far from the zero level, having recorded 0.7% real year-on-year growth in April, slightly up from 0.3% in the prior month.

The return to slightly positive real growth in recent months was the result not only of rising average house price growth, but also due to some receding in CPI (Consumer Price Index) inflation, from 7% year-on-year in February to 6.2% by April (May CPI data not yet available).

Just above zero percent real house price inflation would continue to suggest a market still very well balanced between supply and demand. While demand has not been spectacular since the 2008/9 Recession, supply constraints have been reported widely, and building levels of new homes have remained muted, contributing greatly to the market balance.

The average price of homes transacted in April was R1,075,033.


Examining the longer term real house price trends (house prices adjusted for CPI inflation), it is seen that the level as at April 2016 was +5.3% up on the October 2011 post-recession low.
However, the average real house price level remains -18.2% below the all time high reached in December 2007 at the back end of the residential boom period.

Looking back further though, the average real price currently remains 67.4% above the January 2001 level, just over 15 years ago, and a time back just before boom-time price inflation started to accelerate rapidly. We therefore still regard current real price levels as very high.

In nominal terms, when not adjusting for CPI inflation, the average house price in May 2016 was 298.8% above the January 2001 level.


There are 3 possible key drivers of this perhaps surprising mild acceleration in average house price growth, at a time when interest rates have been rising.

Firstly, it is possible that some of this rise is the lagged impact of a higher general inflation environment which has set in in South Africa of late. After a low of 3.9% year-on-year in February 2015, CPI inflation gradually made its way higher through much of last year, to reach 7% in February 2016. It is possible that higher house price inflation is in part reflective of a higher general inflation environment.

Secondly, however, FNB believes that the acceleration may also be due to a slightly better economic environment setting in during the 2nd quarter of 2016, after a dismal starting quarter of the year. Viewing FNB House Price Index growth on a month-on-month seasonally adjusted basis, we see that in recent years the noticeable dips in the month-on-month rate of change in the House Price Index more-or-less co-incided with equally noticeable dips in the Manufacturing Purchasing Managers Index (PMI – one of the key up to date indicators of short term economic movements).

Recently, however, in the past 2 months’ data (March and April) the PMI has been seen shooting up back to above the crucial 50 level, suggesting some possible mild economic improvement. Such improvement may also be reflected in the rise in month-on-month house price growth.

Thirdly, however, FNB believes that a key contributor in holding up the National House Price Index growth rate is the strong recent performance of the Western Cape region’s housing market. A lot of positive sentiment exists in this region, the country’s 2nd largest economic and residential property region after Gauteng Province, and along with a significant land constraint this has boosted the province’s house price growth into double-digits.

The FNB Western Cape House Price Index recorded 12% year-on-year growth during the 1st quarter (we only produce the provincial indices on a quarterly basis)

By comparison, the other major regions were significantly slower. Eastern Cape Province recorded 7.6% year-on-year house price inflation in the 1st quarter, KZN 5.6%, Gauteng, the country’s largest region, rose 3%, and the Smaller 5 Provinces a mere 1.7%.

It would, therefore, appear to be very much a Western Cape story in recent times.

Read more here: FNB Property Barometer_May_2016_FNB_House_Price_Index_1_Jun_2016