If the Cape calls in sick, is the rest of SA growing negatively?
Deeds office transfers in 2014 and 2015 show that Cape Town’s deeds office records around 30% of the number of transfers nationally. FNB’s October 2016 barometer showed that Cape Town house price growth was 10.5% per annum while the bank’s November 2016 house price index stated that, nationally, the market was growing at 1.9% year-on-year – the seventh consecutive month of weakening year-on-year price growth.
If Cape Town’s home prices are growing by double digits, and if it represents 30% of the market by number of transfers (not value), surely the rest of the country’s actual or nominal home prices are already in negative growth territory – and worse still if inflation is considered?
John Loos, FNB’s household sector strategist, says by his calculations the Western Cape currently accounts for more than half of national house price growth. So surely, if national house price growth is at 1.9% year-on-year, and the Western Cape is responsible for more than 50% of this, the rest of South Africa’s home prices is either already in 0% growth territory, teetering on the edge or already declining in actual or nominal values.
Loos, however, says the national average for Q3 2016 (4.6%) should be used – not the national monthly growth of 1.9% year-on-year in November.
“We don’t have provincial sub-indices included in the monthly national index,” he says. “Our sub-indices for the national average index are all national averages by room number, sectional vs full title and size. We would have to write the code from scratch to extract everything by province.
“We do provincial quarterly house price indices separately, using the same sub-segmented methodology, but only run them just after the end of each quarter. So my Q3 provincial ones are a little outdated compared to my national ones, and rebuilding a national index where provinces are fixed weighted (versus no provincial sub-segments) will in any case come out with a slightly different result.”
Does he expect Q4 and subsequent quarters to see further national house price decline, taking the rest of the country closer to 0% and below?
“It is possible that we have a small bout of negative [house price growth] in the rest of the country,” he says, noting that he doesn’t believe it to be “too severe, as we do see indications of the economy gradually turning a little stronger, higher commodity prices and the possible end of the drought set to help a little.
“But I believe low, single-digit growth (implying real price decline when adjusted for CPI) in the next few years is very much on the cards,” he says.
The issue at hand is that average homeowners use data from economists and banks to weigh up whether buying a home is going to see them better off financially or not.
Case in point is November year-on-year house price index numbers from Standard Bank posting growth of 6.3%. So which one is it? Which of all three of these numbers are buyers and owners supposed to base their buying decisions on?
How can growth numbers be so wide apart from one bank to the next?
“There are a million ways to slice and dice [house price indices] and set your sub-indices that roll up into a national one,” says Loos. “It’s challenging and never an exact science; although some producers of house price indices may try to have you believe that they have it perfect, but nobody does.”
Is the bottom line message for aspiring home buyers and homeowners thinking of selling: “You’re on your own, Jack!”?
Surely, with six million formal homes valued at some R6,6tn there should be someone we can turn to to tell us what is happening to the value of our most valuable asset?