Houses: deflation

2011-05-04 00:00

THE residential property market recorded positive house price growth for the second consecutive month, according to FNB.

Ewald Kellerman, property market analyst at FNB home loans, told The Witness yesterday that although the figure came in at 2,2% in nominal terms in April 2011, house prices continued to decline in real terms, when adjusting for consumer inflation.

While the positive effects of the rate cuts of last year will be felt for the next few months, he warned that this momentum is waning and that a rate hike is on the cards at the Reserve Bank’s monetary policy committee meeting in November.

FirstRand believes that the total cumulative hike cycle will amount to 250-300 basis points.

The latest FNB House Price Index estimated that year on year house price deflation in real terms amounted to 2,8% in March 2011.

According to the bank, the average house price is R802 857.

More first-time buyers are entering the market as this figure — as a percentage of total buyers — is now up to 22% from a low of 15% in 2008.

House prices relative to incomes appear very healthy due to an increase in net disposable income.

However, Kellerman said, the overall market is currently characterised by rising supply and dwindling demand.

He added that the household sector could face some financial pressure during the next rate hiking cycle.

“All the data from valuers, the deeds office and elsewhere show that the market is fairly weak.”

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