• The FNB House Price Index for July 2016 rose by 7.1% year-on-year. This is slightly slower than the revised 7.2% rate recorded for June, which may be signaling a turning point in house price inflation after some mild acceleration in prior months.
• Examining house price growth on a month-on-month basis suggests that a period of slightly better, or slightly “less weak”, economic performance during recent months may still be driving relatively solid house price growth compared with a dip in late-2015/early-2016.
• In real terms, when adjusting for CPI (Consumer Price Index) inflation, the rate of house price growth remains mildly positive, having recorded 0.9% in June, the result of a combination of 7.2% average house price inflation and 6.3% CPI inflation (July CPI data not yet available).
• Mildly positive real house price inflation continues to suggest a market still well balanced between supply and demand. However, many of FNB’s other non-price housing market indicators have pointed to a broad slowdown, raising the risk that the market can move slowly away “equilibrium” in the near future.
• The average price of homes transacted in June was R1,082,605.
• The FNB Valuers’ Market Strength Index (MSI) remains above 50, which still points to a good market balance with the Valuers Demand rating still slightly higher than their Supply Rating. But looking forward, the ability of the market to maintain its balance depends on the direction of the economy, and ongoing year-on-year decline in the SARB Leading Business Cycle Indicator suggests that, short fluctuations aside, general economic weakness looks likely in the immediate future.
The FNB House Price Index’s year-on-year inflation rate slowed slightly in July, and the FNB valuers point to gradual market slowing
JULY AVERAGE HOUSE PRICE GROWTH
The FNB House Price Index for July 2016 rose by 7.1% year-on-year. This is slightly slower than the revised 7.2% rate recorded for June, which may be the start of a turning point in house price inflation after some mild acceleration in prior months.
In real terms, when adjusting for CPI (Consumer Price Index) inflation, the rate of house price growth remains mildly positive, having recorded 0.9% in June, the result of a combination of 7.2% average house price inflation and 6.3% CPI inflation (July CPI data not yet available).
Mildly positive real house price inflation continues to suggest a market still very well balanced between supply and demand. However, many of FNB’s other non-price housing market indicators have pointed to a broad slowdown, raising the risk that the market can move slowly away “equilibrium” in the near term.
The average price of homes transacted in June was R1,082,605.
REAL HOUSE PRICE LEVELS
Examining the longer term real house price trends (house prices adjusted for CPI inflation), FNB sees that the level as at June 2016 was +5.7% up on the October 2011 post-recession low. However, the average real house price level remains -18% 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 66.9% above the End-2000 level, around 15.5 years ago, and a time back just before boom-time price inflation started to accelerate rapidly. FNB therefore still regards current real price levels as very high.
In nominal terms, when not adjusting for CPI inflation, the average house price in June 2016 was 305% above the End-2000 level.
AVERAGE HOUSE PRICE BOND INSTALLMENT TREND
In such a credit dependent market, it is important to understand what the rate of change in the monthly bond installment is, given changes in both house prices and mortgage lending rates.
Using a Prime Rate series, along with Mortgage Originator Ooba’s time series for Mortgage Loans’ Average Differential from Prime, FNB calculates an “average mortgage lending rate and apply it to their average house price series to obtain an average monthly bond installment estimate on a new 100% bond.
The stalling in interest rate hiking since April, after a 50 basis point interest rate hike by the SARB (Reserve Bank) in January, and another 25 basis point hike in March, has led to some slowing in the year-on-year rate of increase in the average priced home installment value.
In July 2016, the year-on-year inflation rate in the bond installment on the average-priced home measured 13.3%. In real terms, adjusting for CPI inflation, the June bond installment inflation rate was a very significant 10.9% (July CPI data not yet available).
FNB’S VALUERS MARKET STRENGTH INDEX EDGES WEAKER
FNB’s valuers, in their FNB Valuers Market Strength Index (MSI) edged slightly weaker in July 2016.
Examining the Demand Rating, Supply Rating and MSI itself, which reflects the difference between Demand and Supply, we see a still well balanced residential market.
The Valuers’ Residential Demand Rating was at a level of 54.51 in July (scale 0 to 100), while the Supply Rating was at a lesser 53.18. This translates into an MSI of 50.67, with the level of above 50 implying that residential demand is still perceived to be stronger than supply.
However, the rate of change in the indices is often insightful too.
On a month-on-month seasonally-adjusted basis, the revised Residential Demand Index has been in decline since July 2015. The rate of decline diminished from November 2015 to May 2016, reaching an almost insignificant rate of decline of -0.04% in May. This diminishing rate of decline in demand contributed to a diminishing rate of decline in the MSI, too, and this appears to tie in with the period prior to June in which we saw a mild acceleration in average house price growth.
However, in June and July FNB saw the pace of decline in the Demand Rating as well as the MSI picking up speed, once more, which in turn may point towards further slowing in house price inflation to come in the near term.
Read more here: FNB Property Barometer_Jul_2016 House Price Index_1_Aug_2016
