‘Mildly better’ housing market expected in 2018

Private Property South Africa

Stronger economic growth and improved sentiment, together with stable interest rates could see mildly stronger house price growth this year.

Although the FNB House Price Index showed slower year-on-year and month-on-month growth, FNB’s John Loos believes that this weak house price growth in early-2018 is reflective of the weak sentiment and market conditions late in 2017 still feeding through to prices with a lag. Loos is of the opinion that 2018 should be a mildly stronger housing market year than 2017.

February FNB House Price Index Findings

From a 2017 high of 5%, reached in November 2017, the FNB House Price Index’s year-on-year growth rate has slowed once more to 2.3% by February 2018, a further slowing on January’s revised rate of 3.8%. In real terms, when adjusting for CPI (Consumer Price Index) inflation, year-on-year house price deflation of -0.6% was recorded in January (February CPI data not yet available), with CPI inflation in that month measuring 4.4% year-on-year.

The average price of homes transacted in February was R1,099,610.

House price growth on a month-on-month seasonally-adjusted basis, showed a recent period of deflation, reaching -0.79% in February. “It is not uncommon to have short month-on-month bouts of deflation, and we believe that this most recent one is still the effect of a period of very weak sentiment in the country late in 2017, still feeding through into house prices with a lag,” says Loos.

The FNB Estate Agent Survey Activity Rating also reflected negative sentiment through 2017. Agents were asked to give a rating to how they perceive activity in the market, on a scale of 1 to 10. By the 4th quarter of 2017, this rating had declined to 5.29, down from a multi-year high of 6.78 reached back in early-2014, and the lowest Activity Rating since the 2nd quarter of 2009.

The survey also showed that the average time of homes on the market had increased from less than 12 weeks in 2016 to 17 weeks and 2 days at the end of 2017, which pointed to an “oversupplied” market. These indicators by-and-large explain the weak year-on-year house price growth in early-2018, and the month-on-month house price decline, with last year’s weak market “fundamentals” still feeding through to house prices with a lag.

Market expected to improve in 2018.

Loos expects a mildly stronger year for the housing market and house price growth, projecting a 4.8% average growth rate for 2018 after a lower 3.8% for last year.

“The signs are still there for an improved economic performance this year. Business Confidence in the country appears to have been boosted by the leadership change in the ruling party in December 2017, and now further by the composition of President Ramaphosa’s cabinet, especially by the return of business-popular Ministers’ Nene and Gordhan to key cabinet posts,’ says Loos.

“The Rand continues to perform solidly, a reflection of this improved sentiment, and it is likely that Consumer Confidence will move in a similar direction.

Furthermore, with CPI inflation at a lowly 4.4% year-on-year in February, and the Rand’s stronger performance likely to curb imported inflationary pressures going forward, the prospect is not only for mildly stronger economic growth, nearer to 1.5%, in 2018, but also an increased possibility of a further interest rate reduction,” he adds.

“Nothing economically look very strong, just mildly better than where we come from, and “mildly better” for the economy probably means “mildly better” for the housing market,” concludes Loos.

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