Middle-segment house price growth remains under downward pressure

Posted On Friday, 07 October 2016 01:04 Published by
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Middle-segment house price growth remains under downward pressure, according to ABSA.


Year-on-year growth in the average nominal value of middle-segment homes in the South African housing market remained on a declining trend in September 2016, with growth at its lowest level since September 2012. On a monthly basis, prices deflated in nominal terms in the past four months after some data revisions (see explanatory notes in this regard).

In real terms, i.e. after adjustment for the effect of consumer price inflation, house prices continued to deflate on both a year-on-year and month-on-month basis in the first eight months of the year. These house price trends came against the background of economic developments affecting household finances and consumer confidence, which eventually impact the performance of the property market.

In September this year, nominal price growth in the middle-segment of the local housing market slowed down further to 3,2% year-on-year (y/y) from a revised 3,6% y/y in August, with real price deflation that accelerated to -2,2% y/y in August from -1,9% y/y in July.

The average nominal value of homes in each of the middle-segment categories was as follows in

September 2016:

• Small homes (80m²-140m²): R924 000

• Medium-sized homes (141m²-220 m²): R1 292 000

• Large homes (221m²-400m²): R2 006 000

The abovementioned trends in home values are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes (see explanatory notes). The performance of the South African economy remained much subdued in the first half of the year, with real growth of 0,3% y/y posted over this period. This performance came against the background of relatively low growth in most sectors of the economy, whereas real value added in the agricultural and mining sectors contracted by 8,3% y/y and 6,5% y/y respectively in the first six month of the year. The forecast is for the economy to grow by only 0,4% in 2016 (1,3% in 2015), with growth expected to improve to a still relatively low real 1,1% in 2017. 

Headline consumer price inflation is expected to average 6,4% this year, with a slowdown to 5,5% projected for 2017. Interest rates are forecast to remain unchanged up to year-end, with rate movements to remain highly dependent on trends in relevant economic data and related developments. The consumer sector is expected to continue to experience a fair amount of financial pressure over the short to medium term, with credit risk profiles to remain an important driver of credit providers’ risk appetites and lending criteria, which will impact consumers’ access to credit. Consumer confidence is expected to remain relatively low into next year, which will affect the demand for credit, growth in household consumption expenditure and the property market. 

Nominal house price growth is forecast to remain in a narrow range of between 4% and 4,5% in 2016 and 2017, with real price deflation of around 1,5% to 2% expected over this period, taking into account the outlook for headline consumer price inflation.

Last modified on Friday, 07 October 2016 16:35

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