SA house price growth off to a 'surprisingly' weak start in 2018
The average South African house price growth “surprised on the downside” for the first quarter of 2018, with the slowdown in Western Cape property prices playing a significant role.
March 2018 saw the FNB House Price Index growing by a slower 1% year-on-year, down from a revised 2.7% in February, and from a high of 5.1% reached in November 2017.
John Loos, household and property sector strategist at FNB, says this implies a weak start to 2018, with year-on-year house price growth for the 1st quarter at only 2.6%, despite indications of improved national sentiment and an improved economy early in the year.
But one key additional constraint on the national house price growth rate of late, has been the “normalisation” of house price growth in the Western Cape. While not long ago, the Western Cape’s relatively strong house price growth was a boost to national average price growth, lately it has become “pedestrian" like the rest, says Loos.
In real terms, when adjusting for CPI (Consumer Price Index) inflation, year-on-year house price deflation of -1.3% was recorded in February, with CPI inflation in that month measuring 4.0% year-on-year, compared to house price growth of 2.7%, the report notes.
The average price of homes transacted in March was R1 097 034.
Lag time in price growth despite improved sentiment
While sentiment and economic conditions may be improving, house price growth might only respond with a lag, says Loos. “We remain of the belief that such a national market strengthening, albeit a mild one, will still materialise in 2018, but there can be a lag time between when residential demand starts to pick up until when year-on-year house price growth starts to strengthen, and that lag is perhaps what we are still seeing in the 1st quarter of 2018.”
Western Cape no longer a boost to national average
Western Cape price growth has “defied gravity” in recent years, recording far stronger house price growth than any other major region, and until recently was a boost to the national average house price growth rate, says Loos.
He notes this ‘boost’ has steadily fallen away, with the FNB Western Cape House Price Index having slowed to only 1.5% year-on-year growth for the 1st quarter, now below the National Average House Price growth rate of 2.6% for the 1st quarter of 2018.
“Given that the Western Cape is the second-largest housing market by value, a slowdown in its house price growth all the way from 10.9% in the 2nd quarter of 2016 to 1.5% in the 1st quarter of this year makes a major difference to the province’s impact on the national average.”
He says the slowing in the Western Cape’s house price growth is no surprise, with the region’s home values having become relatively “unaffordable” in recent years, severely restricting the pace of new entrants, and possibly giving affluent semigrants from other regions in SA second thoughts of late.
The severe drought may also be starting to play a “cooling” role on the economy as well as on the province’s housing market, adds Loos.
Gauteng still seeing low growth