On a year-on-year basis, the FNB House Price Index for September showed a slight strengthening in its growth rate, from a revised 4.1% in August to 4.4%.
The revised figures show a mild acceleration in recent months, but the theme remains a stagnant market with low single digit growth which translates into ongoing gradual real price decline, “real” referring to the rate of change after adjustment for Consumer Price Index inflation.
At 4.9% in August (Consumer Price Index for September not yet available), the 4.1% house price inflation rate in that month translated into a -0.8% year-on-year real house price decline.
Therefore, the most recent house price data, despite some mild upward move in nominal growth, remains in real price “correction” mode, as it has since early-2016, which is reflective of a weak economy causing a gradual residential market shift away demand-supply equilibrium.
This move away from equilibrium has been seen in a gradual lengthening of the average time of homes on the market prior to sale in recent years, as per the FNB Estate Agent Survey.
The 2018 year to date average house price growth is 3.7% year-on-year, which continues to point to the likelihood that 2018 will be a slower price growth year than 2017’s 4.3%, the fourth consecutive year of slowing nominal price growth, and the third consecutive year of real price decline.
The consequences of a weak housing and commercial property market have been felt by the fiscus, with property transfer duty revenues having been largely in negative growth territory in recent times. For the three months to August, transfer duty revenues declined year-on-year by -6.79%., this three-month moving average having been in decline since mid-2017.
The slow price growth in the overall home market (dominated by the existing home market) also continues to make it challenging for the new residential development sector to bring competitively priced stock to the market.
Since 2007, the end of last decade’s residential building boom, the average value of residential units’ plans passed has inflated by 112% up to the second quarter of 2018, and those units recorded as completed have inflated by 183% over the same period. By comparison, the FNB House Price Index, which is overwhelmingly dominated by the existing home market, has only inflated by 53.5% since 2007.
This slow existing home price growth relative to new home cost growth has kept new building volumes relatively low over the past decade, with the second quarter level of units plans passed at 14,523, around half the number being built at stages of 2006/7.
The ongoing low single digit house price growth is likely to keep the new residential development sector under pressure in the near term, doing little to allow new development costs to narrow the gap with existing home prices.