FNB says current real house price levels as ‘very high’

First National Bank’s (FNB’s) mortgage data showed the average house price growing 7.1% in July from the same month in 2015.

After adjusting for inflation, average house prices increased in value by 0.9%, FNB household and property sector strategist John Loos said in his monthly Property Barometer released on Monday morning.

The average price of homes FNB financed in June was R1,082,605.

The average real house price level remains 18% below the record high reached in December 2007 at the end of the residential boom period.

“Looking back further though, the average real price currently remains 66.9% above the end-2000 level, around 15.5 years ago, and a time back just before boom-time price inflation started to accelerate rapidly. We therefore still regard current real price levels as very high,” Loos said.

In nominal terms, when not adjusting for inflation, the average house price in June 2016 was 305% above the end-2000 level.

In such a credit dependent market, it is important to understand what the rate of change in the monthly bond instalment is, given changes in both house prices and mortgage lending rates.

The stalling in interest rate hiking since April, after a 50 basis point interest rate hike in January, and another 25 basis point hike in March, has led to some slowing in the year-on-year rate of increase in the average priced home instalment value.

In July 2016, the year-on-year inflation rate in the bond instalment on the average-priced home measured 13.3%. In real terms, adjusting for inflation, the June bond instalment inflation rate was a very significant 10.9%.