Cape Town - The recent slowing month-on-month (m/m) house price growth rate not only points to possible renewed weakening in the economy, but also to the likelihood that year-on-year (y/y) house price growth may soon begin to slow once more, according to John Loos, household and property sector strategist at FNB.
In his view, it appears highly likely that low single-digit average house price growth will continue in the near term and that the house price “correction” will continue in the form of a further price decline in real terms - in other words, adjusted for the consumer price index (CPI).
The house price correction in South Africa has continued gradually in real terms, according to the latest FNB House Price Index for September 2017.
The index rose by 4.1% y/y - a mild acceleration from the revised 3.8% for August. The average price of homes transacted in September was R1 102394.
The real rate of house price change remained negative at about a -0.9% y/y decline in August. CPI data for September is not yet available.
According to Loos, this is, however, a diminished real house price deflation rate - from -1.1% y/y in July and from a low of -4.8% reached in December 2016.
"This diminished real price decline in August was due to the acceleration in the y/y house price inflation rate of that month from 3.4% in July to 3.8%. However, a slight rise in CPI inflation from 4.6% year-on-year in July to 4.8% in August partly offset the effect of the house price growth acceleration," Loos explained on Monday.
- READ: Average house price growth likely to slow again - index
Slowing month-on-month trend
He pointed out, however, that while the y/y house price growth rate still shows mild acceleration, a better way to view the most recent house price growth momentum is on a m/m seasonally-adjusted basis.
"Calculating house price growth on this basis we see a resumption of the slowing price growth trend, which started in April 2017, after a very brief pause for a solitary month in August," said Loos.
The m/m house price growth rate was only 0.13% for September - down from the prior month’s 0.25% and now well down on the 2017 high of 0.82% reached in March.
"This most recent m/m slowing house price growth trend once again broadly coincides with a marked dip in the Absa Manufacturing Sector Purchasing Managers Index, suggesting that it is reflective of a renewed economic 'dip' after a brief economic growth improvement in the second quarter of 2017, which ended the prior two-quarter recession," said Loos.
"If we annualise the most recent 0.13% month-on-month rate, it says to us that, in the hypothetical scenario of house price growth remaining at this September rate, in the next 12 months we would achieve a mere 1.61% growth in total over the period."
Loos said the all-time real house price peak was at the end of 2007 - the end of the pre-2008 housing boom period. On a cumulative basis real house prices were -19.2% down on that high at August 2017.
"However, looking back further, despite a mediocre performance in recent years, the average real price currently remains a massive 63.9% above the end-2000 level and a time back just before boom-time price inflation started to accelerate rapidly," said Loos.
"In nominal terms, when not adjusting for CPI inflation, the average house price in September 2017 was 318.0% above the end-2000 level. By comparison, consumer goods and services prices, as measured by the CPI, were only 154.7% higher over virtually the same period - up to August 2017 due to September CPI data not yet available."
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