Y/Y house price growth steadily slows over past 7 months

In November 2016, the FNB House Price Index continued to cling onto low positive year-on-year growth. But the rate of year-on-year growth has been slowing steadily, and on a month-on-month basis the index has already been in mild deflation for the past 4 months.

This weakness is not too surprising, given other FNB non-price indicators that have for some time been pointing to weakening demand and residential activity levels. The recent price growth weakness is thus the lagged impact of a multi-year weakening in economic growth, which has caused slowing housing demand and an alleviation of prior supply constraints in the market.

November FNB House Price Index Findings

The FNB House Price Index for November 2016 saw its year-on-year growth rate slow further to 1.9%, from an October revised rate of 2.6%. This represents the 7th consecutive month of slowing year-on-year price growth.

What is also noticeable in these past 7 months is that the pace of slowdown in growth has been noticeably more rapid than any slowing growth phase of the past 5 years or so. As recently as April, the year-on-year rate was a significantly stronger 6.9%.

The slowdown does not come as too much of a surprise though. It is the lagged impact of slowing residential demand for some time. Other of FNB’s residential market indicators, such as the FNB Valuers Demand Rating as well as the FNB Estate Agent Survey Activity rating, have showed decline since well back in 2015, so the warning signs have been there for a while.

In real terms, one could say that a price “correction” is under way. Adjusting for CPI (Consumer Price Index) inflation, the November average real rate of decline was -3.5% year-on-year in October (November CPI data not yet available), given CPI inflation above 6%, and the November real decline promises to be even more significant.

Real House Price Levels

Since December 2015, the average house price in real terms has declined by -4.3%.

Since the end of 2007, the boom time real house price high point, real prices are -21.9% down.

Looking back further though, the average real price currently remains 62.1% above the January 2001 level, back in the early years of the index before boom time price surge really kicked in.
Real house price levels thus remain high compared to pre-boom time levels, the boom having been from early last decade to the end of 2007.

Month-on-Month, The FNB House Price Index remains in deflation

While the year-on-year house price inflation rate manages to hang on to some low positive growth, on a month-on-month seasonally adjusted basis the FNB House Price Index has shown 4 consecutive months of price decline.

The month-on-month seasonally adjusted calculation is a better way to look at recent growth momentum.

From a -0.33% month-on-month decline in October, the November decline was a similar -0.31%.

The periodic short dips in the month-on-month rates of change, either to lower inflation or most recently into deflation, appear to broadly coincide with the short term fluctuations in the economy’s performance.

The Manufacturing Sector Purchasing Managers’ Index (PMI), one of the economy’s leading indicators, has dipped to below 50 in recent months, signaling some contraction in this large and cyclical sector. This sector is a good barometer of the direction of economic growth much of the time, and the fluctuation in the month-on-month house price rate of change thus merely appear to be tracking economic fluctuations.

However, as supply constraints alleviate in the housing market of late, the troughs in the month-on-month rate of change appear to be getting deeper each time.


After a lengthy period of weakening “signals” in the housing market dating back into 2015, the slowdown in year-on-year house price growth has “sped up” considerably. Year-on-year, house price growth still shows slightly positive readings, but on a month-on-month basis the FNB House Price Index has had a 4th month bout of deflation.

The readings of the index are not too surprising, given the multi-year stagnation in the South African economy to where growth this year is likely to have been near to zero. The lagged impact of interest rate hiking, too, is probably still filtering through. On top of this, recent readings of the FNB Consumer Confidence Index have pointed to consumers expressing concern regarding future economic performance.

While FNB expects the alleviation of drought conditions to boost agriculture growth in 2017, and some support from mildly better export commodity price to assist mining, FNB’s forecast economic growth rate of 1% is unlikely to make a meaningful difference to residential demand. Therefore, FNB expects little in the way of residential supply constraints in 2017, resulting in a year of low house price inflation averaging near to 3%. This would translate into an average house price decline in real terms for 2017, when adjusting for CPI inflation.

Read more here: FNB Property Barometer November 2016 House Price Index