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House prices grow 5,7% in first quarter 2016

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The first three months of 2016 saw growth in the average value of middle-segment homes in the South African residential property market remaining relatively stable at a nominal 5,7% year-on-year (y/y). This is the finding of Absa Home Loans property analyst Jacques du Toit, who also found first quarter price growth was to some extent influenced by noticeable base effects in one of the housing categories analysed, namely that of small housing.

Due to continued relatively low nominal price growth and rising headline consumer price inflation to a level of 7% y/y in February, house prices deflated by almost 1% y/y in real terms in the first two months of the year. The average level of house prices was in February 2016 around 10,5% lower in real terms compared with the peak in August 2007. 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.

Year-on-year nominal price growth in the categories of medium-sized and large homes slowed down further in March. However, in the segment of small housing, price growth accelerated further to above 10% in March. The rising price growth in this category of housing since late last year can to a large extent be ascribed to the base effect of sharply declining price growth in the corresponding period a year ago. Some marginal real price inflation was evident in the small and large categories of middle-segment housing in February this year, with continued price deflation recorded in the medium-sized category.

The average nominal value of homes in each of the middle-segment categories was as follows in March 2016:

• Small homes (80m²-140m²): R937,000

• Medium-sized homes (141m²-220 m²): R1,255m

• Large homes (221m²-400m²): R1,987m

Challenging economic conditions in the form of low economic and employment growth, rising inflation and higher interest rates are negatively affecting household finances and consumer confidence. Economic growth is projected at only 0,6% this year (1,3% in 2015), with headline consumer price inflation forecast to average short of 7%, up from 4,6% in 2015. Prime lending and variable mortgage interest rates, currently 10,5% per annum, are expected to rise further to a level of 11% by year-end. These factors are set to impact the property market in various ways, such as diverging demand and supply conditions, changing buying patterns, pressure on market activity and transaction volumes, as well as mortgage providers reconsidering and adjusting risk appetite, lending criteria and market strategies accordingly. As a result, growth in mortgage balances is projected to remain low.

house prices resizeAgainst the background of the abovementioned trends and expectations, nominal house price growth is forecast to slow down from 6,2% last year to a level of between 4,5% and 5% this year, with the risk for price growth to be even lower. Based on the forecasts for nominal house price growth and the headline consumer price inflation rate, real price deflation of around 2% is projected for 2016.


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