Housing Review: Fourth Quarter 2016

– The South African economy grew at a much subdued 0,3% year-on-year in the first half of the year, with low growth in most sectors of the economy, whereas real value added in the agricultural and mining sectors contracted sharply. However, on a quarter-on-quarter basis, growth improved to 3,3% at a seasonally adjusted, annualized rate in the second quarter from a contraction of 1,2% in the first quarter. The economy is forecast to expand by 0,4% in 2016 and 1,1% in 2017.

– The headline consumer price inflation rate averaged 6,2% year-on-year in the first nine months of 2016, largely driven by the key factors of food prices, fuel prices and the rand exchange rate. Inflation is forecast to remain above the 6% level up to early next year, averaging 6,3% this year and 5,5% next year.

– Interest rates have been hiked by a cumulative 75 basis points in the first quarter of 2016 and remained unchanged into the fourth quarter of the year. Despite inflation expected to breach the upper inflation target limit of 6% in coming months, domestic interest rates are forecast to remain unchanged in the rest of the year, with rate movements that will be highly dependent on trends in relevant economic and financial market data.

– Continued consumer financial strain was evident up to the fourth quarter of 2016. Inflationary pressures persisted, interest rates have been on a gradually rising trend since early 2014, while economic growth remained low and employment contracted up to mid-year. Consumers are to face further financial pressure over the short to medium term, which will impact credit risk profiles and confidence.

– Nominal year-on-year growth in home values, based on Absa’s house price data, slowed down further in the third quarter of 2016, whereas prices deflated in real terms across most segments. These house price trends were the result of a range of developments on the economic and consumer front during the year.

– The forecast is for nominal house price growth to remain in a relatively narrow range of between 3,5% and 4,5% in 2016 and 2017. Real price deflation of between 1,5% and 2,5% is projected over this period, taking account of the outlook for headline consumer price inflation.

Read more here: Absa Housing Review Fourth Quarter 2016