Whatshot
Property Talk
Property Talk
Date: 2017-10-06
2016 and 2017 "buyer's market" years
The latest FNB House Price Index for September was published recently and shows some mild acceleration to 4,1% year-on-year from the August figure of 3,8%.
When house prices are adjusted for CPI inflation the real rate of house price growth is still negative at -0,9%. The decline is however less than it was July (-1,1%) and the recent low recorded in December 2016 at -4,8%.
When month on month house price growth figures are compared rather than the year-on-year figures, a strong correlation results with the widely quoted Purchasing Managers Index (PMI) as an indicator of economic activity.
As the PMI drops - ie less inputs are purchased in the manufacturing sector, a drop in house prices follows almost immediately. Currently the slowing month-on-month price growth seems to indicate that the recent improvement in the year-on-year figures may soon be reversed.
Slow single digit house price growth can therefore be expected to remain with us for the near term. If we consider average house price growth since 2014 the downward trend becomes clear. In 2014 an average growth rate of 7% was recorded. In 2015 this was 6,2% and in 2016 house prices grew at 4,9%. For 2017 year to date we are looking at a house price growth rate of a subdued 3,1%
If you look at the longer term house price growth trends we see a definite drop recently from the 2015 peak . House prices are down -4,6% in real terms (adjusted for CPI Inflation) over this relatively short period. However bigger picture overviews show how over the last 10 years real house prices are still significantly lower than the crazy heights reached in 2007.
Real prices are -19,2% off the end 2007 peak. If you sold a property in 2007 consider yourself a genius or simply very lucky. If you bought at the peak of the market, do not feel bad - thousands of others did the same.
The real prices currently do however remain 63,9% above the end-2000 level and in nominal terms without adjusting for inflation house prices are 318% above the end-2000 level. It is interesting that consumer goods in comparison (the fridges, dishwashers, TVs etc that you buy for your home) were only 154,7% higher over the same period.
Overall 2016 and 2017 can be described as "buyer's market" years. There has been excellent choice and aggressive pricing (downwards) by sellers to realize sales. If you are a buyer you could not ask for better trading conditions. If you are a seller it has been frustrating in that the time of the market has been longer on average and homes that have been only slightly over-priced have not been able to find willing and able buyers.
The good news is that CPI (Consumer Price Index) inflation at 4,8% and PPI (Producer Price Index) inflation at 4,2% is firmly under control and within the Reserve Bank's target range. Interest rates remain stable at 10,25% as our Prime rate quoted by South African commercial banks and our Rand:US$ exchange rate remains relatively flat at 13,62.
If the December ANC conference outcome delivers positive news to the market and economy, we can expect a surge in consumer and business confidence and an upswing in activity in the residential real estate market.