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House price growth slows despite improved sentiment

05 Apr 2018

South African national house price growth appears to be bucking recent trends indicating an improvement in national sentiment, with a sharp slowdown in the Western Cape partly blamed for it.

FNB revealed yesterday that year-on-year house price growth declined to a mere 2.6 percent in the first quarter from 5 percent in the fourth quarter of last year.

The decline coincided with the FNB Western Cape house price index, which recently boosted national growth, slowing to 1.5 percent year-on-year in the first quarter and below the national average.

John Loos, a household and property sector strategist, said a slowdown in Western Cape from 10.9 percent in the second quarter of 2016 to 1.5 percent in the first quarter of this year made a major difference to the province's impact on the national average.

The slowdown was not a surprise, because its home values had become relatively unaffordable in recent years, which severely restricted the pace of new entrants to its market. He said this had possibly even given affluent "semigrants" from other regions in South Africa second thoughts of late about acquiring a home and moving to the Western Cape, Loos said.

"The province's severe drought may also be starting to play a 'cooling' role on its economy as well as on its housing market," he said.

The slowdown in the Western Cape had not yet coincided with an expected strengthening in house price growth in Gauteng.

"We have been more upbeat about housing market strength to come in Gauteng, the country's largest market, but as yet have not seen this translate into any house price growth acceleration," he said. FNB said its Gauteng house price index still showed slow year-on-year growth of 1.4 percent in the first quarter of this year.

The slowing national yearon-year house price growth trend seemingly went against recent indications of improvement in national sentiment.

Loos said the RMB-BER business confidence index had already pointed to some moderate strengthening in the first quarter, while the country's composite leading business cycle indicators had also been rising in recent times, which pointed to near-term economic improvement.

Loos said such economic improvement should ultimately spill over into improved household disposable income growth, which in turn could boost housing demand and housing market strength.

"We remain of the belief that a national market strengthening, albeit a mild one, will still materialise in 2018, but there can be a time lag between when residential demand starts to pick up until when year-on-year house price growth starts to strengthen, and that lag is perhaps what we are seeing in the first quarter of 2018," he said.

Loos added that national year-on-year house price growth remained below general inflation as measured by the consumer price index.

He said the FNB house price index in real terms, after adjustment for inflation, has declined -6.1 percent since December 2015 after a prior mild recovery from 2004 until 2014/15 and was down by -20.9 percent since the end of 2007, which marked the final stages of South Africa's pre2008 housing bubble.

However, Loos said it remained high by its historic standards, because it was still 61.4 percent higher than January 2001, just before house prices began to skyrocket.

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