Property Barometer – FNB Valuers Residential Market Strength Index

FNB’s valuers residential market strength perceptions, as reflected in their FNB Valuers Market Strength Index (MSI), edged slightly lower in July 2017.

When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple “good (100)”, “average (50)”, and “weak (0)”.  From all of these ratings, FNB compiles an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to 100. After aggregating the individual demand and supply ratings, FNB subtracts the aggregate supply rating from the demand rating, and the FNB Valuers’ Residential Market Strength Index (MSI) then reflects the difference between the Demand and the Supply Rating.

The MSI appears to be more of a “co-inciding” indicator to the residential market, unlike the more leading nature of certain key indicators gleaned from the FNB Estate Agent Survey.

Examining the Demand Rating, Supply Rating and MSI itself, a June/July return to slightly negative month-on-month movement, after 1 month’s return to positive growth in April, appears to reflect what we have recently witnessed in certain high frequency economic indicators, i.e. some brief hope of recovery early in 2017 followed by disappointment once more in more recent data releases.

The Valuers’ Residential Demand Rating was at a level of 54.61 in July (scale 0 to 100), while the Supply Rating was at a lesser 53.33. This translates into an MSI of 50.64, with the level of above 50 implying that residential demand is still perceived to be slightly stronger than supply.

However, this is not an exact science, and with mildly negative real house price growth of late one could argue that supply actually exceeds demand mildly in many areas.

More insightful, arguably, is the trend in the rate of change in the indices, and the slight decline in the MSI points to valuers on average perceiving a return to market weakening after brief earlier hints of improvement.

The FNB Valuers Residential Demand Rating, on a month-on-month seasonally-adjusted basis, declined by -2.08% in July, the third consecutive month-on-month decline after a brief positive increase in April.

The Valuers Supply Rating has also been in month-on-month decline, but not enough to offset the demand decline, and the result has been two consecutive months of decline in the Valuers MSI (which reflects the difference between demand and supply), to the tune of -0.39% and -0.43% for June and July respectively.

This direction appears similar to our FNB Estate Agent Survey’s Residential Activity Rating, which on a seasonally-adjusted basis strengthened through the two 2016/17 summer quarters before weakening again in the second quarter of 2017.

The return to weakening in the MSI appears to reflect the recent direction of certain economic indicators

The quick return to weakening in the Valuers MSI also appears to point to certain valuers “on the ground” feeling what certain leading economic indicators have been telling FNB lately, i.e. early-2017 hope followed by some disappointment.

FNB saw the RMB Business Confidence Index rise from 38 at the end of 2016 to 40 in the first quarter of 2017 (scale of 0 to 100) before receding significantly in the second quarter to a lowly 29.

Similarly, the FNB Consumer Confidence Index rose slightly from -10 late in 2016 to -5 in the first quarter of 2017 before deteriorating once more in the second quarter of 2017 to a weaker -9.

And the SARB Leading Business Cycle Indicator, too, has shown three consecutive  months of month-on-month decline up to May 2017 after a prior seven months of increase, while the OECD Leading Business Cycle Indicator for South Africa has also shown month-on-month declines of late.

The Leading Business Cycle Indicator decline is particularly significant, because the residential market’s activity as well as new mortgage lending growth typically tracks this indicator’s direction strongly.


The signs of renewed economic pressure, after some positive signs earlier in 2017, appear to have emerged following some major negative news in the form of certain country credit rating downgrades to, in some cases, “junk status”, along with news that South Africa has been in a technical recession. This widely publicized news appears to have once more dampened general sentiment in recent months, as indicated in both business and consumer confidence second quarter declines as well as in the Leading Business Cycle Indicator, and such weakening in sentiment can itself weaken both the economy as well as the residential market.

Some of the negative contributing factors also appear to be from foreign sources, with the SARB reporting SA’s export commodity prices as well as the Leading Indicator of SA’s Major Trading Partner Countries as negative factors in its most recent Leading Indicator Release.

Indeed, the IMF’s Metals Commodity Price Index shows mild month-on-month declines from March to May after some broad rise through much of 2016.

The recent renewed weakness in the FNB Valuers’ Demand Strength Index as well as the MSI suggest that FNB’s valuers as a group may have started to feel these sources of economic pressure “on the ground” in the residential market.

Read more here: Property Barometer – FNB Valuers Market Strength Index – 31st of July 2017