Property Barometer – FNB House Price Index

In July 2017, the FNB House Price Index showed deceleration in year-on-year growth compared with revised June growth, having reverted to slowing growth after early-2017 promise of some mild strengthening.

This return to slowing price growth appears very much in line with certain leading economic indicators, which also showed some mild promise early in the year only to disappoint from around the second quarter of 2017. Key to whether the housing market can strengthen any time soon will be how far interest rate cutting goes this time around.

FNB House Price Index 2017 to date

Several months into this year, it appears increasingly likely that 2017 will represent the third consecutive year of slowing average annual house price growth, and the second consecutive year of house price decline in consumer inflation-adjusted real terms.

For the period January to July 2017, the average year-on-year growth rate in the FNB House Price Index was 2.8%. This is significantly slower than the 5% recorded for 2016, and well down on the post-2008/9 recession high of 7.2%.

In real terms (CPI inflation-adjusted), the average year-on-year rate of decline was -2.9% for the period January to June 2016, a weakening from the -1.2% average rate of decline for 2016 as a whole.

July average house price growth

The FNB House Price Index for July 2017 rose by 3.0% year-on-year. This is a mild deceleration from the revised 3.1% for June, and is the third consecutive month of decelerating growth since the 2017 highest revised rate of 3.3% recorded in April.

Backward revisions in recent months’ data points occur regularly, partly due to some raw data additions periodically, but mostly due to FNB’s application of light smoothing using a statistical smoothing function.

In real terms, when adjusting for CPI (Consumer Price Index) inflation, the rate of house price growth remained in negative territory, having recorded a -1.9% year-on-year decline in June (July CPI data not yet available), albeit a slightly diminished rate of real deflation from the -2.1% rate of the previous month.

This real price decline was largely due to the still-slow nominal house price inflation rate of 3.1% year-on-year in June, while CPI inflation for than month was 5.1%.

The average price of homes transacted in June was R1,093,958.

Month-on-month house price growth slowing may point to another economic weak period approaching

Examining house price growth on a month-on-month seasonally-adjusted basis (a better momentum indicator than the year-on-year calculation) suggests that a period of renewed economic weakness may once again be emerging after a slightly stronger economic performance had looked set to emerge a few months prior.

The housing market can often be a good leading indicator of economic conditions. From late-2016 to March 2017, FNB saw month-on-month seasonally-adjusted house price growth accelerate to a high of 0.88% in that month after a late-2016 dip. More recently, in April through to July, a renewed month-on-month house price growth slowing has been seen, to a near zero 0.04% growth rate in July.

This renewed month-on-month house price growth slowdown has been accompanied by a significant dip in the Manufacturing Purchasing Managers’ Index (PMI) in April and in June, indeed reflecting a battling Manufacturing part of the economy. Month-on-month house price growth often sees its dips times with dips in the PMI, suggesting that both variables track the economy quite closely.

The renewed month-on-month house price slowdown has also been accompanied by a resumption of month-on-month decline in the SARB Leading Business Cycle Indicator in recent months.

The Leading Indicator 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.

Recent renewed slowing in house price growth, therefore, does not come as a surprise.

Early-2016 Rand recovery impact dissipates and domestic house price growth in foreign currency terms 

Given that the Rand has performed somewhat better of late compared to a year ago, the FNB House Price Index when converted into major foreign currency terms has recently shown solid growth.

However, the impact of the Rand’s significant recovery early last year, following the late-2015 “Nenegate” slump, has passed through the year-on-year foreign-denominated house price growth rates, leading to slowing year-on-year growth rates in the FNB Foreign-denominated House Price Indices.

In July, the index showed a 12.7% year-on-year rise in US Dollar terms (from 20.4% in June), and an 8.9% rise in Euro terms (from 20.4% in June). In UK Pound terms, the rate was a higher 14.3%, due to the additional impact of a significant Brexit-driven Pound weakening last year, but this too is sharply slower than the 33.6% year-on-year rise in June.

What do estate agents perceive regarding resale price movements?

From a separate source, the sample of agents surveyed in the FNB Estate Agent Survey point to some decline in “pricing power” of investment property sellers, but not yet leading to greater levels of resale price deflation.

FNB asks agents for their perceptions regarding prices obtained for investment properties put back on the market. Using a four-quarter moving average for smoothing purposes, FNB found that those properties where a resale price of less than the original purchase price is achieved amount to a lowly estimated 3.25% of total properties for the four quarters to the second quarter of 2017. This remains at the lowest four quarter average estimate since early-2008, so no sign yet of agents perceiving an increase in the prevalence of resale price deflation.

However, where one sees the perception of diminishing pricing power is in a noticeable increase in the percentage of properties sold at the original purchase price. From 9.25% of total investment properties sold for the four quarters up to the second quarter of 2016, the percentage of resales equal to original purchase price has risen to 24% for the four quarters to the second quarter of 2017. That is a marked rise, and translates into declines in the percentages of those homes being resold at above purchase price.


From the July FNB House Price Index, FNB saw some slowing in year-on-year house price growth. This doesn’t come as a surprise, as they have already been seeing slowing month-on-month growth in recent months. Certain leading indicators had also pointed to a near term return to weakening in sentiment and economic performance after initial promise of strengthening early in the year.

These economic indicators include a weakening in the SARB Leading Business Indicator in the most recent three months’ worth of data, and a significant dip in both Business and Consumer Confidence after slight improvements in the first quarter.

In real terms, adjusted for CPI, the price correction continues, an event that FNB sees as essential since having moved to being an almost zero growth economy. FNB believes that high real house prices will have to decline significantly to reflect this longer term economic weakness that appears to have set in.

One possible stimulus is the onset of SARB interest rate cutting, a 25 basis point repo rate cut having taken place in July. FNB does not believe that one lone cut is sufficient to move the housing market significantly, but should this be the start of a series of cuts, it is conceivable that house price growth in 2018 could be mildly stronger than the 2017 year-to-date average year-on-year price growth rate of 2.8%.

Read more here: FNB Property Barometer July FNB House Price Index 1 Aug 2017