The FNB House Price Index’s year-on-year growth rate strengthens further, but is still in negative real territory

Posted On Wednesday, 03 May 2017 15:28 Published by
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In April 2017, the FNB House Price Index showed some further acceleration in year-on-year growth compared with the March rate, after having gone through a “dip” late in 2016.


This remains in line with recent signals of renewed strengthening in the economy. The key risk, however, remains how recent policy developments, including a major cabinet reshuffle and subsequent ratings downgrades, play out on sentiment within the Household Sector and thus the housing market. However, at this stage it is too early to tell from the April house price data.


The FNB House Price Index year-on-year growth rate for April 2017 accelerated further to 5.5%, from March’s 4.1% rate.

The average price of homes transacted in April was R1,117,338.

However, in real terms, when adjusting for CPI (Consumer Price Index) inflation, the year-on-year rate of house price change remains in negative territory, having recorded a -1.9% year-on-year decline in March. This is the result of a combination of +4.1% average house price inflation and +6.1% CPI inflation in March (April CPI data not yet available).

The magnitude of this year-on-year house price deflation in real terms, however has begun to diminish, and on a month-on-month basis we have even seen some increase in the past 3 months.

Examining the longer term real house price trends (house prices adjusted for CPI inflation), we see that there has been a minor “correction” of -3.5% since a multi-year real house price high point reached in December 2015.

The average real house price level is now  -21.3% below the all-time high reached in December 2007 at the back end of the residential boom period.

Looking back further, however, the average real price currently remains 63.5% above the end-2000 level, around 16 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 high.

In nominal terms, when not adjusting for CPI inflation, the average house price in April 2017 was 319.9% above the End-2000 level.


Examining house price growth on a month-on-month basis shows a move back into positive territory in recent months.

On a seasonally-adjusted basis, month-on-month house price inflation measured 1.71% in April, marginally higher than the rate of 1.66% in March. This comes after a prior deflation period late in 2016.

These month-on-month house price fluctuations continue to more-or-less reflect short term economic performance fluctuations. The Manufacturing Sector is one sector that normally reflects the direction of the overall economy quite well, and we thus see the high frequency peaks and troughs in month-on-month house price rates of change broadly correlating with the Barclays Manufacturing Purchasing Managers Index (PMI).

The PMI shifted back up to a level above the crucial 50 mark (scale 0 to 100) in January-March 2017, after also having spent the prior 5 months below the 50 level (50 being the dividing line between expansion and contraction in output).


Therefore, our FNB House Price Index for April continued to point to some strengthening in April, although still seeing negative house price growth in real terms (when adjusted for CPI inflation) on a year-on-year basis.

This strengthening appears to be tracking recent signs of strengthening in the domestic economy. The SARB Leading Indicator has been pointing upwards for some months, and the Barclays Manufacturing Purchasing Managers Index, a useful high frequency indicator of economic direction has also been in “expansionary” territory in recent months.

Key drivers of a stronger domestic economy in 2017 can include a strong recovery in Agriculture as a result of an alleviation of drought conditions, while a stronger global economy in recent times is a key positive.

However, key risks to the economy and thus to the housing market remain the developments on the political front, which included a major recent cabinet reshuffle, the removal of Pravin Gordhan, the Minister of Finance, and subsequent ratings downgrades. The April house price data will not yet show any potential impact on sentiment emanating from these recent developments, so we will need to wait for the next few months to assess this.

Given the widespread publicity that such policy developments are receiving, however, it is conceivable that they can have an impact on consumer/household sentiment, causing a more cautiously spending consumer to emerge. That could be a dampener for the housing market in coming months should it prove to be the case.

For these risk reasons, we are not in a hurry to alter our mediocre average house price growth forecast of 3% for the entire 2017, despite recently strong year-on-year numbers.

Last modified on Wednesday, 03 May 2017 15:40

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