Property Barometer – House Price Index

The FNB House Price Index grew slower by 2.3%, year-on-year this past February, down from a revised 3.8% in January, and from 2017’s high of 5% reached in November.

This does not alter FNB’s view that 2018 should be a slightly stronger housing market year than 2017. FNB believes that the weak house price growth in early-2018 is reflective of the weak sentiment and market conditions in late 2017 still feeding through to prices with a lag.

But, with sentiment appearing to be much-improved in early 2018, FNB remains of the expectation that economic growth in 2018 will pick up, interest rates remain stable or even decline slightly, and housing demand should be a little stronger, all of which would cause mildly stronger house price growth this year, compared to 2017.

February FNB House Price Index Findings 

From a 2017 high of 5%, reached in November 2017, the FNB House Price Index’s year-on-year growth rate has slowed once more to 2.3% by February 2018, a further slowing on January’s revised rate of 3.8%.

In real terms, when adjusting for CPI (Consumer Price Index) inflation, year-on-year house price deflation of -0.6% was recorded in January (February CPI data not yet available), with CPI inflation in that month measuring 4.4% year-on-year.

The average price of homes transacted in February was R1,099,610.

Examining house price growth on a month-on-month seasonally-adjusted basis, a better indicator of very recent price growth momentum than year-on-year rates, we have seen a recent period of deflation, reaching -0.79% in February.

It is not uncommon to have short month-on-month bouts of deflation, and FNB believes that this most recent one is still the effect of a period of very weak sentiment in the country late in 2017, still feeding through into house prices with a lag.

That same negative sentiment was reflected in our FNB Estate Agent Survey Activity Rating through 2017, where we ask the sample of agents surveyed to give a rating to how they perceive activity in the market, on a scale of 1 to 10.

By the fourth quarter of 2017, this rating had declined to 5.29, down from a multi-year high of 6.78 reached back in early-2014, and the lowest Activity Rating since the 2nd quarter of 2009.

In addition to activity declining, the agents had reported a steady rise in the average time of homes on the market to a multi-year high of 17 weeks and 2 days by the final quarter of 2017, from less than 12 weeks early in 2016, implying a market moving further away from “equilibrium” between demand and supply towards an “oversupplied” market.

These indicators by-and-large explain the weak year-on-year house price growth in early-2018, and the month-on-month house price decline, with last year’s weak market “fundamentals” still feeding through to house prices with a lag.

However, FNB remains of the expectation that 2018 will be a mildly stronger year for the housing market and house price growth, projecting a 4.8% average growth rate for 2018 after a lower 3.8% for last year.

The signs are still there for an improved economic performance this year. Business Confidence in the country appears to have been boosted by the leadership change in the ruling party in December 2017, and now further by the composition of President Ramaphosa’s cabinet, especially by the return of business-popular Ministers’ Nene and Gordhan to key cabinet posts.

The Rand continues to perform solidly, a reflection of this improved sentiment, and it is likely that Consumer Confidence will move in a similar direction.

Furthermore, with CPI inflation at a lowly 4.4% year-on-year in February, and the Rand’s stronger performance likely to curb imported inflationary pressures going forward, the prospect is not only for mildly stronger economic growth, nearer to 1.5%, in 2018, but also an increased possibility of a further interest rate reduction.

Nothing economically look very strong, just mildly better than where we come from, and “mildly better” for the economy probably means “mildly better” for the housing market.

Read more here: FNB Property Barometer -FNB House Price Index – 1st March 2018