Property Barometer - Area Value Bands

The latest FNB Property Barometer shows that in the 6 major metro regions, the upper income areas continued to show the most noticeable slowing in house price growth, admittedly off the highest base.

The September FNB National House Price Index showed some renewed year-on-year growth acceleration, following a prior slowing trend, suggesting that the days of a well-balanced residential market are not quite over yet.

The Area Value Band Indices are insightful in providing an idea of the relative performances across areas grouped by the average price levels of areas in the 6 major metros of South Africa (Tshwane, Johannesburg, Ekurhuleni, Ethekwini, Nelson Mandela Bay and Cape Town)

And the relative performances seem to point to the high end of the market slowing the most noticeably, which in turn seems to be broadly in line with what the survey respondents in the FNB Estate Agent Survey have been telling us too. 

Using Deeds data transactions by individuals, they compile the 4 FNB House Price Indices by Major Metro Area Value Band, namely Upper Income Areas (Average house price = R2.67m), Middle Income Areas (Average Price=R1.46m), Lower Middle Income Areas (Average Price = R879,469) and Low Income Areas (Average Price = R461,072).

On a year-on-year basis, we see that the Upper Income Area Segment’s average house price growth has slowed from 10.2% back in the 3rd quarter of 2014 to 5.3% by the 3rd quarter of 2015. Through 2013 to early-2015, this segment had the highest price growth of all 4 segments, as the high end played “catch up” to the lower priced segments. But from the highest base, this segment has showed the most noticeable slowing in growth through 2015 to date, although still experiencing mildly stronger year-on-year price inflation than the Lower Middle Income and Low Income Areas Value Bands.

By comparison, the Lower Middle Income Area Segment inflated by 4.4% year-on-year, and the Low Income Area Segment by 3.5%, while the Middle Income Area Index showed the strongest average price growth of 7.3%. All 4 segments were showing slowing year-on-year price growth rates as at the 3rd quarter though.

This information lead us to believe that the slight recovery in the FNB National House Price Index may be driven by the Lower Middle Income Area segment, and that we may see this segment’s Price Index holding up a little better in the near term.

With regard to the Upper Income Area Value Band, however, we remain of the belief that it will begin to “underperform” the other 3 segments in the near term. This is because of our view that economic growth will continue on its broad multi-year slowing, and that this will shift a portion of residential demand down towards the Middle and Lower Middle Income Areas.

FNB concludes that however, the experience of the 2008/9 recession suggests that, while the Lower Middle Income Areas may begin to perform relatively better in the very near term, ultimately, should the economy proceed into recession, the financial pressure will become greater on low income households. The average house price deflation was thus most significant in the Low Income Area Value Band back in 2008/9 according to our price measures.

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