House prices ready for annual growth - FNB
November 3, 2009
By Sapa
House price deflation on a year-on-year basis might be "a thing of the past", FNB said yesterday as it released its house price index.
The index was already inflating on a month-on-month basis, FNB home loans strategist John Loos said.
In October, year-on-year average price deflation was 1 percent, significantly better than September's revised 3.6 percent rate of decline, Loos said. The average price index rose by 3.4 percent month on month, which was unchanged from September.
"Month-on-month figures should be read with caution, though, as there is an element of seasonality in the numbers," Loos said.
The average house price is 187.1 percent higher than the July 2000 level, the point at which the FNB house price index started.
"The average house value for the month measured R751 323," Loos said.
FNB said that a survey of estate agents found that demand started strengthening from late 2008, while the interest rate cuts of the past year began to translate into more home loans being issued.
"This was bound to ultimately lead to a resumption of rising prices in some form," Loos said. But he added that the outlook remained "mediocre".
"It would appear that the Reserve Bank has come to the end of its interest rate cutting phase." Although there was "an outside probability" of further interest rate reductions, FNB believed that the repo rate would remain unchanged until late 2010, "at which point the next interest rate move is expected to be up".
Loos said for the time being, the possible end of interest rate cutting should not derail the property recovery, as the interest rate cuts were still feeding through to the market. He expected that stimulus to have fully fed through by about mid-2010.
"Then it is up to the economy to contribute more strongly," he said.
He said he believed that the economy could carry the market.
"However, we continue to warn against expecting too much.
"In South Africa... the household debt to disposable income ratio has made little downward progress, due to incomes being under huge pressure, making debt ratio reduction slow going."
According to Loos, mediocre global economic growth and a local household sector that could not be expected to spend the economy to far greater heights implied a fairly moderate economic growth rate in South Africa of around only 2 percent next year, which would not be a huge stimulus to the market.
"While we expect to see a move back to house price inflation as 2010 approaches, the expectation is that average price inflation for next year will be moderate at around 5 percent for the year, and that late in 2010 we may well see the market 'flattening out' somewhat as the interest rate stimulus wears thin."
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