Real house price growth still below inflation - index

Cape Town - A "correction" in real house price growth in South Africa continues with growth remaining below general inflation, according to John Loos, household and property sector strategist at FNB.

The latest FNB House Price Index for March this year shows that house prices in SA grew by a slower 1% year-on-year (y/y). This is down from a revised 2.7% in February and from 2017’s high of 5.1% reached in November.

In real terms - therefore when adjusting for Consumer Price Index (CPI) inflation - y/y house price deflation of -1.3% was recorded in February. Data for March in this regard is not yet available.

Loos says this implies a weak start to 2018, despite indications of improved national sentiment and an improved economy early in the year.

For him a recent key additional constraint on the national house price growth rate has been what he calls the “normalisation” of house price growth in the Western Cape.

"Not long ago, the Western Cape's relatively strong house price growth was a boost to the national average price growth. Of late, however, its rate has become 'pedestrian' like the rest," says Loos.

In real terms the FNB House Price Index has declined by -6.1% since December 2015. Loos explains that the 2016/17 real price decline was on the back of a very weak economic growth rate in recent years, along with the lagged impact of interest rate hiking from early in 2014 to early in 2016.

"Viewing the longer term picture, the index is down by -20.9% since the end of 2007, which marked the final stages of SA’s pre-2008 housing bubble," says Loos.

"The real index remains high by its historic standards, however, still 61.4% up on January 2001 - a date just before boom time house prices began to skyrocket."

He adds that the national housing market is now awaiting some "lift" from the improved national sentiment and economic performance. He also foresees that the recent 25 basis point interest rate cut by the SA Reserve Bank may boost home buyer confidence mildly.

"There can be a lag time between when residential demand starts to pick up until when y/y house price growth starts to strengthen - and that lag is perhaps what we are still seeing in the first quarter of 2018," says Loos.

The average price of homes transacted in March was R1 097 034.

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