Gradual downward trend in house price growth continues – Absa
The gradual downward trend in local annual house price growth since late 2014 continued up to November 2015, reports Absa Home Loans property analyst Jacques du Toit.
Year-on-year growth in the average nominal value of homes in the middle segment of the South African housing market slowed down further to 4.2% in November from 4.6% in October. On a monthly basis house price growth subsided to a virtually negligible level of less than 0.1% in November, contributing to the declining trend in year-on-year price growth.
These trends in home values are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes.
Nominal year-on-year price growth in middle-segment medium-sized and large homes appeared to have levelled out in recent months, with a further slight uptick in growth in November. This may be attributed to the important base effect of a downward trend in price growth in these two segments of housing commencing late last year. This development may have the effect that year-on-year price growth in these two categories of housing may technically show a further gradual upward trend in coming months. Month-on-month price growth, however, remained at a low level in both these segments up to November.
In real terms, i.e. after adjustment for the effect of headline consumer price inflation, house price growth remained under downward pressure up to October on the back of inflation trends and declining nominal price growth. Real year-on-year price deflation was still evident in the small and medium-sized categories of middle-segment housing in October, with some real price growth recorded in respect of large homes. The net effect of these price trends was that only a marginal real year-on-year price drop was recorded in middle-segment housing in October.
The average nominal value of homes in each of the middle-segment categories was as follows in November 2015:
- Small homes (80m²-140m²): R877,000
- Medium-sized homes (141m²-220m²): R1,241,000
- Large homes (221m²-400m²): R1,989,000
Factors related to the economy, household finances and consumer confidence will remain important to the future performance of the residential property market. Economic growth is forecast to remain relatively subdued in 2016, with increasing inflationary pressures as a result of, inter alia, expected rising food prices and a depreciating rand exchange rate. Against this background, interest rates are projected to be hiked up further next year and in 2017. These factors will negatively affect household finances and the affordability of housing and mortgage finance.
Nominal house price growth of 5% to 6% is forecast for 2016, with the risk to the downside against the background of economic and consumer sector trends and prospects. Based on the outlook for nominal price growth and the headline consumer price inflation rate, real house price growth is expected to remain under severe pressure in the next 12 to 18 months.