House prices look set to weaken soon

2012-07-06 00:00

ALTHOUGH yet another uptick was recorded in the FNB House Price Index in June 2012, the price outlook appears largely modest for the residential property sector.

The index for June came in at 8,9% year on year from 8,6% year on year in May in nominal terms.

In real terms, the index showed growth of 2,7% year on year in May.

FNB’s household sector and property strategist John Loos told The Witness that although the data suggest that a price recovery is taking place, the shorter-term trends point to a weakening of real prices.

“Right now the month-on-month growth is a more accurate reflection of what is to come. On a month-on-month basis, we are starting to see slower growth.

“We have begun to see a gradual loss in house price growth momentum since a revised peak in January 2012. From a peak of 1,65% in January, month-on-month seasonally-adjusted house price growth had slowed to 0,82% by June.

“This slowing month-on-month growth trend suggests that a peak in the year-on-year house price growth rate should be reached soon.”

The average time that a property stays on the market, according to FNB, remains relatively high at about four months (15 weeks) compared with 13 weeks in 2010 and eight weeks in 2007.

Loos would like to see this figure decline to about two to three months.

He said a variety of factors influence the price expectations of sellers. “Sellers don’t always follow the market. They may look at what they paid for the property. This is part of the structure of the market.”

Although many homeowners paid little attention to the house price trends, they were a key indicator for many property owners.

“If prices go up, it does give them a sense of comfort. If prices were to go down and you were in financial trouble and had to sell or downscale, which many people have had to do, then it matters a lot. It does provide a safety net in a rising market because you know that in the event of selling you know your home loan is covered. Many people nowadays see their home as an investment.”

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