‘House price growth still slowing’

2011-02-01 09:23

House price growth continued to slow in January, according to the FNB House Price Index released today.

“The year-on-year rate of increase declined further from a revised rate of 3.1% in December to 1.4% in January,” said John Loos, FNB Home Loans strategist.

In real terms, that is adjusting for a December consumer price inflation rate of 3.5% year-on-year, December saw a -0.4% real decline.

The downward trend in house price growth was not impacted by the late-2010 interest rate cuts.

The slowing growth rate was largely driven by weak demand growth.

This was a result of, firstly, a weak economy and its constraining effect on household income growth, and secondly, the high levels of household debt relative to disposable income, Loos said.

“But strong residential supply, an overhang from the building boom of a few years ago, as well as high levels of financial pressure-related selling, also plays a key role.”

FNB valuers’ collective opinion was that demand relative to supply weakened further from December to January.

Loos said various economic data released in January indicated there would be a lack of stimulus for the residential property market.

This included the SA Reserve Bank’s decision to keep interest rates unchanged.
The bank’s governor Gill Marcus warned of inflationary pressures.

“Not surprisingly, therefore, many commentators are speculating as to the timing of the start of interest rate hiking, while few see further interest rate cutting, it would appear.”

Loos said at the moment inflation was not a problem, with the December consumer price inflation a low 3.5%.

“Our view is that rate cuts have indeed ended, and that early-2012 could herald the start of the hiking cycle.”
He predicted a flat year for the residential property market.

“The combined result of a lack of further expected interest rate cutting in 2011, and what looks like being weak medium term economic growth, keeps us retaining the view of a very flat residential property market, with average price growth for 2011 as a whole to be close to zero.”

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