Average house price passes R1m mark - index

The average house price for June rose 5.2% year-on-year, slightly up from May’s 5.0%, according to the latest FNB House Price Index.

This “stalls” the broadly slowing year-on-year price inflation trend that has been in place since early-2014, according to John Loos, household and property sector strategist at FNB.

At R1 002 122 the index’s average price level passed the R1m mark in June for the first time.

"This is the estimated average price of homes transacted and is 'skewed' to the higher end of the market, because middle to higher income households are more mobile and thus buy and sell homes far more frequently than the poor," explained Loos.

"So, while a house price index can be useful in determining price growth trends, it does not accurately depict the average value of every single home that exists in SA right down to the small 'RDP' home."

"Boring equilibrium"

Loos said a question that has come up of late is whether the residential market has entered a phase of what could be termed “boring equilibrium” - as many of FNB's main national residential indicators point to.

He explained that the slowing growth trend “stalls” somewhere between 5% and 6% and not too far from where the Consumer Price Index (CPI) inflation currently is.

"This implies a virtually insignificant house price inflation rate in real terms - that is when one adjusts for CPI inflation - of 0.5% in May," said Loos.

"This real house price inflation rate has been slowing of late, with CPI inflation 'normalizing' upward as the impact of last year’s oil price drop works its way out of the numbers. CPI inflation had reached 4.6% by May, and is soon expected to be above 5%."

"Our FNB Valuers’ National Market Strength Index appears to support the perceptions of good market balance, hovering at near to the 50 mark - on a scale of 0 to 100 - reflecting a Valuers’ Aggregate Demand Rating that is only marginally above their aggregate supply rating.

The FNB Estate Agent Survey points to something similar.

The average time on the market appears to have settled, too, hovering at around three months over the past year or so - between the near five month peak around 2008/2009 recession time, on the one hand, and the 2004/2005 boom period lows of below two months.

"In an economy where gross domestic product growth potential currently appears to be between 1% and 2%, household sector disposable income is not going to grow fast, and neither should residential demand, therefore," said Loos.

"Mortgage lending rates are generally above average house price inflation these days, making it tough to speculate on property for short term capital gain using cheap credit. And mediocre house price growth is unlikely to unleash a first time buyer frenzy based on 'buyer panic' - when first time buyers believe if they don’t buy now it will be too expensive to afford property in future."

He said, while there is no doubt some speculation and some buyer panic, none of these buying drivers are believed to exist in “large” quantities.

"The potential bad news, however, is that the residential market and residential mortgage lending sector cannot function in isolation of the economy around it. The economy is its driver, and its well being is thus crucial," said Loos.

Source: FNB Property Market