FNB has released its House Price Index for March 2018, showing a slowdown in growth across the country.
Average house price growth grew just 1% year on-year for March according to the Index, down from a revised 2.7% in February, and from 2017’s high of 5.1% reached in November.
“This implies a weak start to 2018, despite indications of improved national sentiment and an improved economy early in the year,” said FNB property sector strategist, John Loos.
“However, one key additional constraint on the national house price growth rate of late has been the ‘normalisation’ of house price growth in the Western Cape,” he said.
“Not long ago, that province’s relatively strong house price growth was a boost to the national average price growth. Of late, however, its rate has become ‘pedestrian’ like the rest.”
The slowing year-on-year price growth trend seemingly goes against recent indications of improvement in national sentiment, Loos said.
However, he indicated that the RMB-BER Business Confidence Index has already pointed to some moderate strengthening in the 1st quarter of 2018, while the country’s Composite Leading Business Cycle Indicators have also been on the rise in recent times, pointing to near term economic improvement.
“Such economic improvement should ultimately spill over into improved Household Disposable Income growth, which in turn can boost housing demand and housing market strength,” he said.
“We remain of the belief that such a national market strengthening, albeit a mild one, will still materialise in 2018, but there can be a lag time between when residential demand starts to pick up until when year-on-year house price growth starts to strengthen, and that lag is perhaps what we are still seeing in the 1st quarter of 2018,” he said.
Western Cape no longer boosting the national average
In recent years the Western Cape region, has defied national norms to record far stronger house price growth than any other major region.
Until not long ago this was a boost for the national average house price growth rate, said Loos.
“This boost, however, has steadily fallen away, with the FNB Western Cape House Price Index having slowed to a lowly 1.5% yearon-year growth for the 1st quarter, now below the National Average House Price growth rate of 2.6% for the 1st quarter of 2018,” he said.
As the Western Cape is the second largest housing market by value, Loos said that the slowdown in its house price growth from 10.9% in the 2nd quarter of 2016 to 1.5% in the 1st quarter of this year makes a major difference to the province’s impact on the national average.
“The slowing in the Western Cape’s house price growth is no surprise, with the region’s home values having become relatively unaffordable in recent years, severely restricting the pace of new entrants to its market, and possibly even giving affluent “semi-grants” from other regions in SA second thoughts of late,” he said.
“The province’s severe drought may also be starting to play a ‘cooling’ role on its economy as well as on its housing market.”
Loos added that the Western Cape’s slowing house price growth has not yet coincided with an expected strengthening in house price growth in Gauteng.
“We have been more upbeat about housing market strength to come in Gauteng, the country’s largest market, but as yet have not seen this translate into any house price growth acceleration.
“The FNB Gauteng House Price Index still showed slow year-on-year growth of 1.4% in the 1st quarter of this year,” he said.