House-price growth is still slowing down, according to the October FNB House Price Index, which has noted the fifth successive month of decline since a mini-peak in May this year.
The average house price for October was R783 621. However, according to FNB property strategist John Loos, the slowdown is, well, slowing down. This could be because the September interest-rate cut has provided a little relief for consumers, making property that little bit more affordable. Loos believes it will take more interest-rate cutting, and improved economic growth, to turn this declining trend around, though.
Interestingly, FNB property valuers noted that their Market Strength Index has weakened further, which might also explain the weakening in price growth. Valuers see ongoing weakness when it comes to demand relative to supply and they don’t perceive the weak demand relative to supply to have really recovered since the slump in 2008.
FNB has also used deeds data that relates to individual transactions to estimate the relative price performance of various area value bands in the country’s six major metropolitan areas. In the third quarter, the average price increase for affordable areas climbed to 19,7% from last year, which suggests that those at the lower end of the market, who are more dependent on credit buying, may have been boosted most by the interest-rate cuts. And these people have probably found it easier to get credit, too, since 2008.
Also, most people are seeking more affordable homes, so this segment of the market is probably going to win thanks to those many households under financial pressure. The average price of a property in this “affordable” segment is R409 760.
Second best off were the “middle-income areas”, where the average price is R713 768. An inflation rate of 12,5% was recorded.
Inflation data suggests another rate cut is likely
According to Loos, better-than-expected consumer and producer price inflation numbers for September mean that it’s likely the South African Reserve Bank will cut rates again in November. Although Loos cautions that this could mean abnormal rate hikes down the line, reminding us that “what goes down must go up at some point”, he believes another cut might provide short-term support for home buyers.
Inflation tends to eat into the disposable incomes of households, and although inflation is very low at present, one stumbling block in the inflation picture is in the area of the housing CPI, the largest single component of the CPI and whose inflation rate may start to rise soon due to recovering rental inflation.
“Insofar as residential rental and utilities tariff inflation raises the overall consumer inflation rate, this could negatively affect consumers in future, despite the fact that a rental market recovery is a requirement for good longer-term residential performance and higher income yields on property,” says Loos.
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