House prices: 2017 worse than 2016, expected to turn in 2018
Average house price growth is forecast at 3% for 2017, and when adjusting for inflation (at current consumer price inflation of 6.5%) is expected to decline to -3.5%. This is according to John Loos, household sector strategist at FNB, who anticipates 2018 to be the year when a slight strengthening in the annual average price growth rate will be witnessed. But at 4.7% – after adjusting for inflation – will still be below 0%. And this market “strengthening” comes with conditions that it will only happen should mildly improved economic forecasts hold.
“The FNB forecast is for slightly improved economic growth in 2017 of 1%, from an expected 0.2% rate for the entire 2016,” said Loos. “That mildly improved expectation is on the back of the belief that the SA Reserve Bank is done with interest rate hiking for the time being, and will keep interest rates at current levels, where the prime rate is 10.5%, through 2017 and 2018. In addition, we assume some normalisation of agriculture Gross Domestic Product in 2017 as the drought conditions ease, and signs of some mild global economic turnaround could also be mildly more supportive of our domestic economy next year.”
After a -6.3% decline in the volume of bonded property transactions by individuals for 2016 as a whole, Loos forecasts a further -2% decline in 2017, with positive growth in the bonded component of property transactions only returning to positive growth in 2018.
While the market is in decline in the short term, those with mortgages seem to be managing their debts, with National Credit Regulator data on mortgages in arrears for longer than three months rise to 3.4% of the value of total household sector mortgage loans outstanding by Q2 2016. This is slightly up from 3.1% at the end of 2015 but far off the 9.4% reached in Q1 2010 following the 2008/9 recession and 2008 prime rate interest rate peak of 15.5%.
“And should the FNB economic and interest rate forecasts indeed play out in the next few years, the projection is for this non-performing loan percentage to resume a gradual declining trend in the near term, averaging 3.2% of total loans outstanding in 2017 after a forecast 3.3% for 2016 as a whole,” said Loos. “So, while there is a distinct lack of growth in the residential mortgage market, which appears set to continue, the market continues to perform well under the poor economic circumstances, in terms of the level of mortgage debt repayment performance.”
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