Residential News

South African house price growth resumes downward trend from 2015

Economists downgrade house price growth forecasts to no more than 3% for 2017

Housing activity has come under pressure in recent months, prompting economists to downgrade their house price growth forecasts to no more than 3% for 2017.

Prices rosey an average 5% in 2016, as recorded by FNB and Absa’s housing indices.

FNB household and property sector strategist John Loos said last week that housing demand had seeming to slow over the past two quarters, with the FNB Residential Activity Indicator at its lowest level since the second quarter of 2009.

That was the last time SA experienced a technical recession following three quarters of negative GDP growth.

The FNB index recently resumed a broad multiyear declining trend that started early in 2015, after a brief two-quarter strengthening in the summer of 2016-17.

Loos said the declining trend should not come as a surprise given low levels of consumer and business confidence.

“The lack of positive economic policy announcements at a time when the spectre of further sovereign ratings downgrades lingers and social tensions rise is a recipe for weak confidence levels,” he said.

“Thus one could expect households to become more conservative in their spending and borrowing patterns.’’

Loos warned that the marginal improvement in the country’s economic growth rate in recent quarters may have been short-lived.

“We say this because housing activity is a useful leading economic indicator and so it should be given the property market’s high sensitivity to economic events,’’ he said.

Another indicator of weak housing demand, said Loos, was that the number of potential buyers visiting show houses remained depressed compared with 2013 highs. There were 10.29 serious viewers per house, down from 16.69 in 2013. Loos expects house price growth of 3% for 2017 as a whole, markedly lower than the 4.9% recorded by FNB for 2016, and well down on the post-2009 recession high of 7% reached in 2014.

On Friday Absa Home Loans property analyst Jacques du Toit also forecast nominal price growth of 3% for 2017. He said that would translate into a decline of about 2.3% in real terms given an average inflation rate of 5.4% for the year.

Du Toit said muted growth in mortgage lending further underscored the subdued conditions in the housing market.