FNB House Price Index - April 2009

The April FNB House Price Index reached double-digit year-on-year average house price deflation for the first time, to the tune of -10.2%. This puts the average house price level back to the level at the end of 2006.

This weakness reflects the cumulative impact of a host of negative economic factors still feeding through, including high interest rates and consumer inflation until recently, as well as recessionary conditions that are hampering domestic job creation and purchasing power.

Looking forward, I believe that house price decline may be with us for the entire 2009, despite some positive stimulus for residential demand coming from interest rate cuts. The reasoning is that, even should demand begin to improve, there exists a significant oversupply of property on the market that will take some time to be mopped up.

The key threat/risk to the housing market emanates from a troubled global economy and its impact on our own economy and disposable income. However, May is an important month for the market domestically, too, with some key political matters to be settled. These include the inauguration of the new president Jacob Zuma, and the market will be looking for comfort in the final composition of his cabinet, and obviously the fate of people such as Minister Trevor Manuel. Political matters can be key in a thin residential market, as we saw an emigration selling surge last year after Polokwane and Eskom contribute to the oversupply of property already in the market. This emigration selling appears to have subsided, and it is crucial that we get the right signals from the new political leadership this month to avoid a similar emigration surge doing similar damage.

The ongoing mismatch between supply and demand (i.e. oversupply) leads to the forecast of -9.5% decline in the average 2009 price compared to the 2008 average, with mild price inflation only returning in 2010.

Download the full House Price Index, as released by FNB this morning