5% house price growth may be scuppered by politics, drought
House price growth slowed by almost a full percent in 2017, compared with 2016’s 4.8%. This was according to FNB’s House Price Index which pegged house price growth in 2017 at 3.7% – the third consecutive year of slowing annual average price growth.
“Based on 11 months’ worth of CPI inflation data, this translates into an estimated decline of -2.4% in real terms (adjusting house price growth for consumer price inflation),” said John Loos, FNB’s household and property sector strategist, who said there appeared to be a silver lining for homeowners.
“When examining the FNB House Price Index performance on a monthly basis, we actually see that it showed gradual year-on-year growth strengthening as the year progressed, having hit ‘rock bottom’ growth late in 2016.
“From a low of 1.5% year-on-year house price growth in December 2016, the rate gradually rose to reach 6.1% in December 2017, further up from a revised 5.5% rate for November 2017. In real terms, when adjusting for CPI, house price deflation that had occurred earlier in the year gradually dissipated, and by November we saw a slightly positive year-on-year real house price growth rate of 0.8%, house price growth moderately exceeding CPI (December CPI data is not yet available).”
The average price of homes transacted in December was R1,126,224.
2018: What to expect
Loos predicts that 2018 could see house price inflation turn the corner, albeit only slightly stronger. “From an average house price growth rate of 3.7% last year, we project the 2018 average to shift a little higher to nearer to 5%,” he said, attributing the turnaround to expectations of marginal economic growth improvement in 2018, from an estimated 0.7% last year to 1.2%, and one lone interest rate hike only late in the year which is not expected to have a significant dampening effect.
“But predictions are never without risks. Much will depend on the political and government policy environment, though, with 2018 being the run-up to the 2019 general election. Uncertainty around policy direction makes forecasting even tougher than it would be under conditions of greater certainty, posing significant risks to forecasts. Widely publicised ratings agency downgrades for the country, should they occur, can quite easily dampen national sentiment, and this can easily feed into a housing market either directly, or indirectly, via the economic impact.
“In addition, drought conditions, notably in the Western Cape region, can impact on regional economies which feeds into those regions’ housing markets, so much will depend on weather patterns in certain parts of the country this year, especially in the Western Cape which is one of the country’s prime property markets.”