FNB’s HPI’s year-on-year growth rate continues to ‘bump along the bottom’

In February 2017, the FNB House Price Index showed slightly slower year-on-year growth compared with the revised January rate, and at 0.8% continues to “bump along the bottom”.

However, month-on-month house price inflation has turned slightly positive after a recent bout of deflation, and certain leading economic indicators point to mildly better economic times in the near term. This could lead to moderately higher house price growth later in the year.

February average house price growth 

The FNB House Price Index for February 2017 remained in the growth “doldrums”, rising by a mere 0.8% year-on-year. This is slightly lower than the revised 0.9% rate recorded in January. The average price of homes transacted in June was R1,057,719.

In real terms, when adjusting for CPI (Consumer Price Index) inflation, the rate of house price change remains in negative territory, having recorded a -5.3% year-on-year decline in January. This is the result of a combination of 6.6% average house price inflation and 0.9% CPI inflation in January (February CPI data not yet available).

The magnitude of this house price deflation in real terms has begun to represent a noticeable house price “correction” of late. Since December 2015, the average real house price has declined by -5.6%.

Examining the longer term real house price trends (house prices adjusted for CPI inflation), FNB sees that the recent “correction” has wiped out all post-2008/9 recession gains. The real house price level as at January 2017 was zero percent different from the November 2011 post-recession real price low.

The average real house price level is now -23% below the all-time high reached in December 2007 at the back end of the residential boom period.

Looking back further, however, the average real price currently remains 59.9%% above the end-2000 level, around 16 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 February 2017 was 297.5% above the End-2000 level.

Month-to-month house price growth moves back to positive territory 

Examining house price growth on a month-on-month basis shows a move back into positive territory in January and February.

On a seasonally-adjusted basis, month-on-month house price inflation measured 0.14% in February, after a revised slightly positive rate of 0.01% in January. That comes after deflation for the last 5 months of 2016.

These month-on-month house price fluctuations appear to reflect short term economic performance fluctuations. The Manufacturing Sector is one sector that normally reflects the direction of the overall economy quite well, and FNB thus sees the high frequency peaks and troughs in month-on-month house price rates of change broadly correlating with the Barclays Manufacturing Purchasing Managers Index (PMI).

The PMI shifted back up to a level above the crucial 50 mark (scale 0 to 100) in January 2017, after also having spent the previous 5 months below the 50 level (50 being the dividing line between expansion and contraction in output).

Leading economic indicators … and rain … point to near term economic improvement 

Additional economic indicators which point to improving economic conditions in the near term are South Africa’s 2 Leading Business Cycle Indicators, the one being the SARB’s (South African Reserve Bank) version and the 2nd one published by the OECD.

In recent months, the SARB Leading Indicator has returned to positive year-on-year growth after a multi-year period of decline, while the OECD’s version has seen steadily diminishing year-on-year decline in recent months.

South Africa could also benefit mildly from some rise in Global Metals Commodity Prices, while an end to drought conditions in certain parts of the country promise to boost Agriculture output.

One of the variables included in the SARB Composite Leading Business Cycle Indicator is that of Residential Building Plans Passed excluding “dwelling houses” smaller than 80 square metres, a leading economic indicator more directly related to the housing market. The plans passed data has recently pointed to economic improvement to come with its recent months’ year-on-year growth rate accelerating steadily.

Therefore, while South Africa’s average house price growth continues to “bump along the bottom”, certain key leading business cycle indicators (along with improved rainfall in many agricultural regions) point to some near term improvement in economic growth. This, in turn, could mean some mild strengthening in average year-on-year house price growth a few months from now, and although it is too early to draw conclusions, the January/February move in the FNB House Price Index month-on-month growth rate into positive territory could be the start of such strengthening.

However, FNB would caution against expecting too much. When market commentators talk about strengthening in Global Commodity Prices, they certainly aren’t talking about boom times. To the contrary, by end-2016, despite some rise, the IMF’s Global Commodity Price Index remained a massive -45% down on its February 2011 pre-slump high.


Therefore, our FNB economic growth projection is for a “muted recovery” from an estimated 0.4% in 2016 to 1.1% in 2017. This expectation, along with a forecast for interest rates remaining unchanged for the entire year, leads us to expect some strengthening in average house price growth later in 2017 but no “fireworks”. This, in turn, leads us to an average house price forecast of 3% for the entire 2017, higher than where house price growth is currently at. However, this would still represent a lower average house price growth rate than the 5% of 2016, and would still be negative in real terms, reflective of an economic strengthening that is mediocre at best.

Read more here: FNB Property Barometer – House Price Index 1st of March 2017