Standard Bank Macroeconomics Data Release: HPI July up 7.6% y/y

· SBR’s HPI edged up 7.6% y/y in July from an upwardly revised 7.5% y/y (originally 7.3% y/y) in June (fig 1). Sub-indices show that freehold properties slowed to 7.7% y/y from a slightly upwardly revised 8.8% y/y in June (originally 8.7% y/y), while sectional title properties were flat at 9.8% y/y (the June print was revised from 9.6% y/y) (fig 1).

· This modest growth came despite subdued household credit growth (fig 6). Household credit slowed to 2.1% y/y in June from 2.4% y/y in May. Within household credit (fig 2), mortgages (which account for 60% of total household credit) slowed marginally to 4.1% y/y in June from 4.3% y/y in May.

Household credit is being supported by the less weak performance of mortgages. Without mortgages, household credit would have declined around 0.4% y/y. Moreover, even though lenders are generally cutting back on credit, insofar as mortgages are concerned, the pullback has been gradual not aggressive (fig 2).

· From a supply perspective, construction of residential units has seen YTD growth of 5.1% y/y (fig 3), as measured by the number of units completed. Growth in the construction of freestanding homes lags that of flats and townhouses. YTD, the number of houses built has contracted by 4.4% y/y, in contrast to a steep recovery of 31.9% y/y in the construction of flats and townhouses. In 2015, flats and townhouses contracted by 3% y/y (fig 3).

· The SBR Volume Index shows that purchasing activity declined by 15.6% y/y in July. This was the first contraction since June 2015 (fig 4). More specifically, sectional title purchasing activity slipped into contractionary levels for the first time since the global financial crisis, while that of freehold properties has been in contraction since July 2013 (fig 5).

· Looking ahead, Standard Bank sees a combination of three factors playing an important role in driving property prices in the short- to medium term: The contracting purchasing activity (fig 4), which we view as being consistent with the softening of the labour market and the declining disposable income; the diverging trend in the supply of residential property units, more specifically the sectional title properties (figs 4 & 5); as well as the slowing mortgage credit extension (figs 2 & 6).

· A combination of all these factors may, in the near future, tilt the scale towards an excess supply scenario, thereby limiting growth in property prices in the short- to medium term.

· More positively, the SARB last month decided to pause on the rate hiking cycle. SBR’s view is for an additional 25 bps in interest rate hikes over the remainder of the current hiking cycle before the SARB starts cutting rates in the second half of 2017, which should help ease pressure on consumers.

Read more here: Standard Bank July HPI