According to the FNB House Price Index, the average house price for February 2014 rose 8% year-on-year. This is very slightly lower than a revised 8.2% January house price inflation rate, and the 2nd consecutive month of mild slowdown in price growth.
Real house price growth (i.e. when house prices are adjusted for consumer price inflation), came in at 2.33% year-on-year in January (February CPI not yet available). This also represents a slight slowing from 2.83% real price growth in December, due to the combination of a slight slowing in nominal house price growth from the 8.4% rate of December to 8.2% in January, along with a rise in CPI inflation from December’s 5.4% to 5.8%.
The average price of homes transacted was R935,332.
In real terms, the FNB House Price Index remained well-above levels of a decade ago, up 27.8% from January 2004. However, compared with last decade’s real average price peak, reached in December 2007, the December 2013 real price was still -17.9% lower.
In nominal terms, the February 2014 average price was 119.47% higher than the February 2004 price level, but only 18.1% above the December 2007 level.
Despite some slight slowing in the year-on-year inflation rate of the FNB House Price Index, an 8% rate for February remains a number reflective of a solid market. And indeed, should this indicator be insufficient evidence of this, Friday’s release of January SARS property transfer duty revenue, which reached a 49.4% year-on-year growth rate in value in that month is definitely supportive of such an assertion.
However, both the House Price Index as well as the month-on-month rate of change in the FNB Valuers Market Strength Index point to a mild slowing in the pace of market strengthening in the past 2 months or so.
It must also be said that it is probably too early for the February FNB data to be reflective of any slowing impact that the late-January interest rate hike may have had. In addition, the year-on-year growth rate in the SARB Leading Business Cycle Indicator as at December turned slightly negative too, suggesting ongoing economic mediocrity.
With these factors in mind, along with our expectation that interest rates may rise a little further to where Prime Rate ends 2014 at 10%, we would expect the pace of market strengthening to slow in the coming months, resulting in further mild slowing in average house price inflation as the year progresses. The extent of the price growth tapering expected would be back down to a rate of 5-6% by year-end, slightly below CPI inflation which is expected to end the year just above 6%.
Finally, the combination of 8% house price growth and a slightly higher 9% Prime Rate should continue to keep the market by-and-large healthy in terms of containing levels of speculative activity. Our alternative measure of Real Prime Rate, using house prices with which to adjust prime rate instead of using CPI, is admittedly on the low side at 1% in February. However, it remains mildly positive, still keeping the market away from the strongly negative rate of 2004-5 which supported short term speculative activity on a large scale.
Alan Straton
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