The FNB House Price Index’s mini-growth uptick appears to be peaking, with month-on-month growth already losing momentum.
In November 2015, the FNB House Price Index inflation rate continued its mild year-on-year growth uptick of recent months, following a prior gradual slowing rate dating back to early-2014. However, this mini-uptick appears to be peaking, with month-on-month house price growth already slowing.
The recent small acceleration in year-on-year house price growth appeared to be driven by a “temporary” uptick in economic performance around mid-year, but may also in part be explained by indications of significant constraints in residential supply. Supply constraints can mean that any slight fluctuation in residential demand could move residential price inflation quite easily.
The FNB House Price Index for November 2015 rose by 7.2% year-on-year. This is slightly up from a revised 7.1% for October, continuing the mild short term accelerating price growth move that has emerged in recent months. These recent months’ acceleration came after a prior gradual slowing trend that started back in early-2014, after house price growth had hit a multi-year high of 8.6% at the end of 2013.
In real terms, when adjusting for CPI (Consumer Price Index) inflation, the rate of house price growth accelerated very slightly to 2.3% year-on-year in October (November CPI data not yet available), from 2.2% in the previous month, with CPI inflation at a lowly 4.7%.
The average price of homes transacted in November was R1,046,406
Examining the longer term real house price trend (house prices adjusted for CPI inflation), we see that despite some rise in recent years, (+6.7% since the October 2011 low) the average real house price level remains -17.2% below the all time high reached in December 2007 at the back end of the residential boom period.
Looking back further though, the average real price currently remains 65.2% above the July 2000 level, the date when the index started, and a time back just before boom-time price inflation started to accelerate rapidly.
Real house price levels thus remain at “boom time” levels in our view, despite having lost some ground since the end of 2007.
In nominal terms, when not adjusting for CPI inflation, the average house price in November 2015 was 290.3% above the July 2000 level.
While the year-on-year house price inflation surge appears to be approaching its “mini-peak”, on a month-on-month seasonally adjusted basis (a better way to look at recent growth momentum), the growth rate has started to slow in October and November. From a 1.1% month-on-month high in September, the rate has declined to 0.8% by November.
The “mini-surge” in house price inflation around mid-2015 broadly co-incided with a positive “bump” in the economy around that time. The Manufacturing Sector Purchasing Managers’ Index (PMI), one of the economy’s leading indicators, briefly rose to above 50 in May-July, signaling some expansion in this large and cyclical sector, and 3rd quarter GDP (Gross Domestic Product) turned slightly positive on a quarter-in-quarter basis.
More recently, however, the PMI has turned back down to below the critical 50 level, while the SARB’s Leading Business Cycle Indicator has also turned for the worse, suggesting a return to weaker economic times. The resumed slowing in month-on-month house price inflation may therefore merely be beginning to once again track the economy slower.
Alan Straton
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