On a month-on-month basis prices showed subdued growth of less than 0,5% in October. In real terms, i.e. after adjustment for the effect of consumer price inflation, house prices deflated further in September this year.
Nominal price growth in the middle-segment of the local housing market came to 4,4% year-on-year (y/y) in October this year, with real price deflation in September recorded at 1,7% y/y. The average price of a middle-segment home was in real terms about 12% lower in September this year compared with the peak in August 2007.
The average nominal value of homes in each of the middle-segment categories was as follows in October 2016:
• Small homes (80m²-140m²): R961 000
• Medium-sized homes (141m²-220 m²): R1 316 000
• Large homes (221m²-400m²): R2 008 000
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 South African economy posted relatively low real growth of only 0,3% y/y in the first half of 2016, with the Reserve Bank’s leading business cycle indicator, which is a reflection of the direction of economic activity 6 – 9 months into the future, that continued its declining trend in the first eight months of the year. The forecast is for the economy to grow by a real 0,4% in 2016 and 1,1% in 2017.
Headline consumer price inflation measured 6,1% y/y in September, with the year-to-date average at 6,2% y/y. Inflationary pressures still persist with headline CPI forecast to remain above 6% y/y up to early 2017 before declining steadily to around 5% y/y by the end of next year. Interest rates were kept unchanged after being hiked by a cumulative 75 basis points in the first quarter of the year and are forecast to remain stable up to year-end, with rate movements to remain highly dependent on trends in key economic and financial market data.
Consumers are to experience further financial strain over the short to medium term, with employment and income growth to remain much subdued. Spending power will be eroded in view of inflationary pressures, interest rate trends and expected tax increases in 2017. Credit risk profiles, financial vulnerability and credit health will affect the accessibility of, the demand for and growth in household credit. The low level of consumer confidence is expected to continue and may deteriorate further over the short to medium term, with confidence an important factor impacting credit demand and the performance of the property market.
In view of the above-mentioned trends and prospects, nominal house price growth is forecast to average between 3,5% and 5% in 2016 and 2017, with prices set to deflate by 1,5% to 2% in real terms over this period. Real house price trends will be affected by consumer price inflation, which is expected to average 6,3% this year and 5,5% next year.
