Property Barometer - August FNB Valuers Market Strength Index rises, but demand growth may be starting renewed slowing

Posted On Friday, 02 September 2016 09:21 Published by
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In recent months, the FNB Valuers’ Residential Market Strength Index (MSI – see page 2 for description) has been through a short bout of mild demand-driven strengthening. However, month-on-month demand growth started to slow once more in August, which possibly means a near term weakening coming in the MSI.


From a 2016 low point of 50.68 in April, the MSI has risen to 50.94 in August. This increase was driven by a mild rise in the FNB Valuers’ Residential Demand Rating, from 54.75 in April to 55.03 in August.

The FNB Valuers’ Supply Rating did not support the MSI strengthening over the period, having increased mildly since April (residential supply increases seen as negative from a market balance point of view).

The fact that the MSI is above the level of 50, on a scale of 0 to 100, implies that the valuers on aggregate remain of the view that national residential demand is mildly stronger than supply. This is probably reflected in still-mildly positive real house price growth (i.e. after house price inflation is adjusted for consumer price inflation) as at July, to the tune of 0.9%.

In our August FNB House Price Index release, we pointed to a temporary acceleration in month-on-month average house price growth going into the 2nd quarter of 2016.

The MSI normally acts as something of a “confirming” indicator of market trends that appear in the House Price Index, and this slightly lagged rise in the MSI (lagged compared with the house price growth acceleration of a few months prior) also appears to confirm what was a slightly stronger market, and probably a stronger economy too, in the 2nd quarter of 2016.

Admittedly, much of the short 2nd quarter bout of residential market strengthening was probably largely driven by the Western Cape region, which has moved in a different direction the most of the country of late.

However, month-on-month house price inflation began to slow once more from June, hinting at the possibility of a slowing housing market and economy alike after a better 2nd quarter. Looking for signs of a turn in the MSI data we find early signs in the Demand Rating, whose month-on month seasonally-adjusted growth rate slowed from 0.16% in July to 0.13% in August, not significant yet but nevertheless a slowing.

While one month of slowing growth in the Demand rating makes it too early to draw conclusions about a trend change, the month-on-month house price inflation rate has slowed for 3 consecutive months to August.

In addition, the Barclays Manufacturing Purchasing Managers Index (PMI) showed a nasty drop from 52.5 previous (scale of 0 to 100) to 45.3 in August, its 2nd consecutive month of decline, with a level below 50 pointing to a Manufacturing Output contraction.

The PMI is the most up to date economic indicator, and its short term fluctuations often correlate fairly well with fluctuations in month on month house price inflation as well as with the Demand Strength Index and Valuers MSI.

With such a key high frequency data release pointing to possible economic slowing after a better 2nd quarter, 3 months of month-on-month house price slowing to date, and now more recently 1 month of slowing growth in the Demand Rating, early data evidence is pointing to a renewed near term slowing in the economy and the residential market, the 2 being inter-linked, after what appeared to have been a slightly improved 2nd quarter.

Last modified on Friday, 02 September 2016 09:31

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