Property Barometer - February 2016

In February 2016, the FNB House Price Index recorded a 6.5% year-on-year rate of increase, which is very similar to the revised rates of the prior 2 months. This “treading water” in the year-on-year rate of increase over the past 3 months has much to do with a lower base effect created by a lull in house price growth a year ago.

On a month-on-month basis, however, the house price inflation rate continued to slow mildly on a seasonally-adjusted basis, and its lowly rate of increase points to a likely near term slowing in the year-on-year rate.

The FNB Valuers’ market perceptions continue to be supportive of the expectation of slowing house price growth to come, having perceived some mild market weakening in the Market Strength Index (MSI) of late.

KEY POINTS

The FNB House Price Index showed a year-on-year increase of 6.5% in February 2016, virtually unchanged from the revised 6.5%for the previous 2 months. This rate is being supported by “low base” effects, due to a dip in monthly house price inflation a year ago. The most recent months’ house price growth rates are mildly down off the 6.9% 2015 high point of October.

The month-on-month seasonally-adjusted house price inflation rate has been slowing for the past 5 months, from a 0.92% high in September 2015 to 0.23% by January 2016, a loss of growth momentum which should translate into lower year-on-year house price inflation in the near term.

FNB’s Valuers, as a group, appear to provide support for the expectation of slower house price growth, with the FNB Valuers’ Market Strength Index (MSI) having begun to decline mildly in recent months, on the back of slowing residential demand and the start of improving supply.

We forecast an average house price inflation rate of 4.8% for 2016, slower than the 6% recorded for 2015.

Our expectation of slower house price growth in 2016 is not only about what FNB’s Valuers tell us regarding slowing demand. It also has to do with the expectation that real economic growth will slow further from near 1.5% in 2015 to 0.5% this year. Depressed export commodity markets, along with a severe drought, are key to this slower growth forecast, as are rising interest rates.

We expect further gradual interest rate hiking through 2016, to a level where Prime Rate ultimately peaks at 11.25% next year, from a current level of 10.25%. 

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