Cape Town - The average house price growth for 2017 is expected to be 3%, John Loos, household and property sector strategist at FNB, said on Wednesday.
Although this estimated 3% is higher than where house price growth is currently at, it is still lower than the average house price growth rate of 5% in 2016.
In nominal terms - when not adjusting for consumer price index (CPI) inflation - the average house price in February 2017 was actually 297.5% above the level at the end of 2000.
In real terms - when adjusting for CPI inflation - the average house price growth rate is still negative. It recorded a -5.3% year-on-year decline in January. Loos said this is the result of a combination of 6.6% average house price inflation and 0.9% CPI inflation in January.
He explained that this reflects a mediocre economic strengthening. FNB's economic growth projection is for a recovery from an estimated 0.4% in 2016 to 1.1% in 2017.
"One could, therefore, expect a 'muted recovery' in the average house price growth in South Africa," said Loos.
"This expectation, along with a forecast for interest rates remaining unchanged for the entire year, leads us to expect some strengthening in average house price growth later in 2017, but no 'fireworks'."
"In February 2017, the FNB House Price Index showed slightly slower year-on-year growth compared with the revised January rate, and at 0.8% continues to 'bump along the bottom'. This is slightly lower than the revised 0.9% rate recorded in January. The average price of homes transacted in June was R1 057 719," said Loos.
"However, month-on-month house price inflation has turned slightly positive after a recent bout of deflation, and certain leading economic indicators point to mildly better economic times in the near term. This could lead to moderately higher house price growth later in the year."
House price "correction"
Since December 2015, the average house price has declined by -5.6% in real terms and the extent of this house price deflation in real terms is starting to represent a noticeable house price “correction”, according to Loos.
Examining longer term real house price trends, Loos sees that the recent “correction” has wiped out all post-2008/2009 recession gains. The real house price level as at January 2017 was 0% different from the November 2011 post-recession real price low.
The average real house price level is now -23% below the all-time high reached in December 2007 at the back end of the residential boom period.
Looking back further, however, the average real price currently remains 59.9% above the end-2000 level, around 16 years ago, and a time back just before boom-time price inflation started to accelerate rapidly. We, therefore, still regard current real price levels as very high," said Loos.
On a month-on-month (m/m) basis there has been a move back into positive territory in January and February, according to Loos.
On a seasonally-adjusted basis, m/m house price inflation measured 0.14% in February, after a revised slightly positive rate of 0.01% in January. That comes after deflation for the last five months of 2016.
In the view of Loos, these m/m house price fluctuations appear to reflect short term economic performance fluctuations.