FNB house price index up 6.4% y/y in August

The FNB house price index showed a slight acceleration in its year-on-year (y/y) growth rate‚ to 6.4% in August from 6.3% in July, according to household and property strategist John Loos.

The FNB house price index showed a slight acceleration in its year-on-year (y/y) growth rate‚ to 6.4% in August from 6.3% in July.

“This is not a significant rise‚ and in recent months the house price inflation rates recorded have not been too far away from consumer price inflation rates recorded in the economy‚” FNB household and property strategist John Loos said on Monday.

The average value of homes transacted in the FNB house price index was R894‚600.

Stats SA said earlier in August that the real value of building plans passed in larger municipalities rose by 16.2% year on year (y/y) in the first six months of 2013 after a 3.4% increase in 2012‚ while the real value of buildings completed rose by 10.2% y/y in the first six months of 2013‚ after a 0.5% decline a year earlier.

“In real terms (adjusting house prices for general inflation in the economy using the CPI)‚ as at July we were seeing virtually no positive year-on-year inflation‚ 0.03% to be precise‚ with consumer price inflation having risen from 5.5% in June to 6.3% in July‚” Loos said.

“Evaluating longer term performance‚ compared with August 2003‚ 10 years ago‚ the index is up 37.99% in real terms and 139.48% in nominal terms‚ still suggesting that the full price effects of last decade’s residential demand boom have far from worn off ‚ despite a significant downward real correction since late-2007‚” he said.

“Looking at the more recent past‚ however‚ in real terms the index is 19.8% down on last decade’s revised real price peak reached in December 2007‚ while in nominal terms it is a mere 14.6% higher‚ so a price ‘correction’ has been in progress‚” he said.

“Turning to the FNB valuers’ market strength index‚ FNB’s valuers have indicated that recent relative market strength has been the result of the combination of positive residential demand growth as well as a more constrained supply of residential stock on the market.

“Since early 2012‚ the FNB valuers’ market strength rating index has shown gradual positive year-on-year growth after a 2011 decline. However‚ it still remains below the crucial level of 50‚ at 47.32‚ implying that the residential demand rating of 50.8 is still weaker than the 56.16 residential supply rating.

“This arguably explains why we have not yet seen strong house price growth in real terms‚ because‚ while they do see supply being a little more constrained‚ the constraint is still far from being extreme‚” he said.

“The residential market is in an interesting ‘space’ at present. On the one hand we have had signs of gradually improving demand along with increasing supply constraints. On the other hand‚ we have had a slowing pace of real household disposable income growth in recent times‚ resulting in weakened consumer confidence according to the FNB consumer confidence index.

“It thus seems to be a case of the housing market moving in the opposite direction to the consumer economy‚” he said.