The FNB House Price Index kicked off the year on a mildly lower note, averaging 3.7% year-on-year in February, below the 4% year-on-year recorded in January and the 3.9% annual average for 2018. This is against our CPI inflation expectation of 4.2% year-on-year in the same period. Month-to-month, the FNB House Price Index accelerated to 0.27%, up from 0.15% in January.
As has been the case since February 2016, house prices remain mildly below CPI inflation, although January recorded a better outturn (-0.02% versus -0.38% in December). This slight improvement was, however, solely driven by benign inflation rather than house price appreciation.
FNB valuers perceive the slowing activity to have continued into 2019
FNB’s valuers rate current residential housing demand as weakening and supply strengthening. Consequently, the FNB Valuers’ Market Strength Index weakened further in February, pointing to deteriorating demand-supply balance. The FNB Residential Demand Rating declined by 1.8% on a year-on-year basis while the FNB Housing Supply Rating continued its ascent, recording a 2.2% rate as at February 2019. These movements in demand and supply translate into a further decline in the FNB Market Strength Index by 2.2% year-on-year, to reach a reading of 49.51, keeping it below the 50-mark for the ninth consecutive month. This below-50 reading means that valuers rate residential supply as stronger than demand (explanatory notes at the end of the report).
These trends aptly explain the declining real house prices and suggest that the market remains slightly in favour of buyers. Indeed, the FNB Estate Agents Survey results show that between 2016 and 2018, the proportion of properties sold below asking price averaged 91.6%, compared to an average of 85.2% three years prior (an increase of 6.4 ppt).