FNB -Latest House Price Index

In May 2016, the FNB House Price Index recorded a 7.4% year-on-year rate of increase, which is slightly faster than the 7.0% revised rate of the prior month.

Given CPI (Consumer Price Index) inflation of 6.2% in April, in real terms average house price inflation was a modest 0.7% year-on-year in that month, reflecting a still-well balanced market.

Higher nominal house price inflation may be partly the lagged effect of a shift to a higher economy-wide inflation environment since a year ago. However, it may also reflect a slightly better economic environment in the 2nd quarter of 2016, after a dismal start to the year in the 1st quarter.

Furthermore, FNB believes that the national house price growth average currently receives strong support from the Western Cape region, which has bucked the slowing trend recently observed in other provinces to record double-digit house price growth early in 2016.

The return to slightly positive real growth in recent months was the result not only of rising average house price growth, but also due to some receding in CPI (Consumer Price Index) inflation, from 7% year-on-year in February to 6.2% by April (May CPI data not yet available).

Just above zero percent real house price inflation would continue to suggest a market still very well balanced between supply and demand. While demand has not been spectacular since the 2008/9 Recession, supply constraints have been reported widely, and building levels of new homes have remained muted, contributing greatly to the market balance.

The average price of homes transacted in April was R1,075,033.

FNB suggests that there are three key factors behind the recent acceleration in average house price growth. Firstly it could be that some of this rise is the lagged impact of a higher general inflation environment which has set in in South Africa of late, secondly it can possibly also be attributed to a slightly better economic environment setting in during the 2nd quarter of 2016. Viewing the FNB House Price Index growth on a month-on-month seasonally adjusted basis, it shows that in recent recent years the noticeable dips in the month-on-month rate of change in the House Price Index more-or-less coincided with equally noticeable dips in the Manufacturing Purchasing Managers Index.

And lastly, FNB believes that a key contributor in holding up the National House Price Index growth rate is the strong recent performance of the Western Cape region’s housing market. 

A lot of positive sentiment exists in this region, the country’s 2nd largest economic and residential property region after Gauteng Province, and along with a significant land constraint this has boosted the province’s house price growth into double-digits.

You can read the full report here or listen to the the podcast here

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