The First National Bank (FNB) house price index recorded 2,3% year-on-year price inflation in August, compared with 3,5% in July, thereby continuing its declining inflation trend, the bank said on Thursday.
However, on a month-on-month basis, price deflation had already been in progress for six consecutive months since March of this year, recording -0,3% in August, said FNB property analyst John Loos.
In real terms, adjusting the index for inflation using the CPI, year-on-year price deflation amounted to minus 8,8% in August.
The drivers of the weakening house price performance stretched far beyond just interest-rate hikes, Loos said.
A rising household debt-to-disposable income ratio had contributed, along with rising interest rates, to rising debt service costs, while surging consumer inflation had been eating into disposable income.
On top of this, jitters following the African National Congress Polokwane conference, the January Eskom crisis and the deteriorating Zimbabwe situation may have conspired to drive emigration rates higher as sentiment took a dip.
”We have also calculated a median price index for comparison purposes,” Loos added.
After a period in which the median price inflation rate was below that of the average price inflation rate (from April 2006 to June 2008), a swing back to the median exceeding the average price inflation rate could signal the end of a period of shifting activity towards the lower-priced end.
”I believe that it is no longer clear that the lower-priced end is outperforming the higher end as was the case up until recently,” Loos pointed out.
Important to understand was that house price trends depicted in the indices did not show the full extent of residential market weakness.
”Sellers are somewhat inflexible when it comes to dropping their asking price … Some would stay out of the market during these weak times, while others hold on longer to obtain their price, often incurring higher holding costs.”
Simultaneously, the number of new developments being finished were plummeting, also causing supply of stock in the market to adjust downward.
Supply therefore partially adjusted downward to weakening demand, preventing house prices from falling to the extent that transaction volumes did.
While month-on-month house price deflation was already here, year-on-year price deflation was expected to arrive soon, Loos said.
However, no ”freefall” was anticipated. Rather, about minus 5% year-on-year deflation was expected at the worst part of the price cycle in the first half of 2009, before price inflation resumed late next year on the back of recovering economic growth and declining interest rates. — Sapa