FNB House Price Index growth rate slows again

Posted On Monday, 03 November 2014 11:10 Published by
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October 2014 House Price Index growth rate slows again, but a "re-acceleration" of sorts may be near.

John Loos

The FNB House Price Index has seen slowing year-on-year growth once again in October. However, other FNB housing market indicators continue to suggest the possibility that we may soon see some renewed year-on-year price growth acceleration.

According to the FNB House Price Index, the average house price for October 2014 rose 5.9% year-on-year. This is slower than the previous month's revised 6.0%, and represents the 10th consecutive month of gradually slowing price inflation since the 8.5% year-on-year rate recorded in December 2014.

Real house price growth (i.e. when house prices are adjusted for consumer price inflation), was marginally positive to the tune of 0.04% year-on-year in September (October CPI not yet available), helped by some recent decline in September CPI inflation, which measured 5.9% year-on-year.

The average price of homes transacted in October was R961,760.

In real terms, the FNB House Price Index for September was -20.3% down on December 2007, the month in which last decade's boom time peak in real house prices was reached. In nominal terms, house prices by October 2014 were +21.4% higher than December 2007.

Examining the longer term performance over a 10 year period, however, in real terms the index is still 6.75% higher than September 2004, and 89.27% higher in nominal terms compared with October 2004.

but the FNB valuers market strength index suggests that house price growth may once again start to accelerate soon

The FNB Valuers' Market Strength Index continues to point to an increasingly well balanced residential market.

The Valuers as a group continue to perceive a rise in demand along with deteriorating supply, the perfect recipe for an improving balance between demand and supply. The index scale is zero to 100, and a level of 50 indicates a balanced market, with the Residential Demand Rating equaling the Residential Supply Rating.

Significantly, therefore, the Market Strength Index rating has recently risen to slightly above that key 50 level, recording 50.2 as at October 2014.

While the Market Strength Index's year-on-year growth rate has been slowing since early-2014, more or less in line with the slowing year-on-year growth trend in house price inflation, examining its seasonally-adjusted month-on-month rate of increase, we have seen a noticeable resurgence in growth momentum since around mid-year, driven by a steady acceleration in the month-on-month growth rate in the Valuers' Demand Rating.

This is one possible indication that some strengthening in house price growth is in the pipeline in the near term, despite the recent slowing year-on-year price growth trend.

And indeed, if we examine the FNB House Price Index itself on a month-on-month seasonally-adjusted basis, we already see a renewed growth acceleration to 0.71% as at October, significantly higher than the low of 0.2% as at April 2014

The 0.71% month-on-month rate represents an 8.9% month-on-month annualized growth rate, significantly above the October 5.9% year-on-year rate. If sustained, this should translate into a rise in the year-on-year price inflation rate within the next few months.


After something of a lull in both the rate of house price inflation as well as the rate of growth in the Valuers' Market Strength Index, both indicators have shown renewed month-on-month seasonally-adjusted acceleration. In the coming months, this could be expected to translate into an acceleration in the year-on-year rate of house price inflation.

These signs of renewed growth acceleration tie in with our FNB Estate Agent Survey, whose Activity Rating for the 3rd quarter also showed some rebound after some slowing earlier in the year.

What all of this could mean is that the residential market perhaps faced some mildly increased growth pressure early in 2014, brought about by the 1st quarter's economic contraction, as well as a "surprise" January interest rate hike.

More recently, however, we have seen economic growth return to low positive territory, and the Reserve Bank (SARB) has done very little in terms of further interest rate hiking since January, possibly giving the market some comfort that interest rate hiking is likely to be at a snails' pace should it materialise.

And with September CPI inflation back down below the SARB's upper target limit of 6%, rates may well remain unchanged at least for the next few months.

The expected result is some renewed moderate rise in average house price inflation as the year draws to a close, ending 2014 at a rate nearer to 7% year-on-year.

Double-digit house price inflation is not anticipated any time soon, though. We believe that there are too many negatives in the economy currently for this. Despite having returned to positive growth, economic growth prospects appear weak, and we remain of the belief that interest rates will resume their slow rising trend in 2015, serving to contain house price growth.

But while not expecting fireworks, all of our indicators continue to point to a solid and well-balanced residential market, despite a very weak economy, and a weak supply of new residential stock is a key driver of this balance.

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