Holiday town house price growth slows further

(by John Loos)

After a reasonably solid period through 2014 until early-2015, the FNB Holiday Towns House Price Index has more recently shown a loss in price growth momentum.

This index is compiled from deeds transaction data for towns deemed to be strongly holiday property-driven.

In the first quarter of 2016, the index turned to negative year-on-year price growth of -4.1 percent, down from a slightly positive revised rate of +0.5 percent in the previous quarter.

This is the first quarter of year-on-year decline since the first quarter of 2012, and is the index is under-performing the average house price growth rate of 4.5 percent year-on-year of the of the more primary residence-driven major metropolitan markets

This slowing continues a slowing growth trend which started in the first quarter of 2015, after a fairly strong high of 11.4 percent year-on-year price growth recorded in the final quarter of 2014. Back at that point prices in holiday towns were inflating faster than the more stable primary residence-driven metro markets.

It is natural for markets such as holiday towns, which rely on a high level of non-essential holiday home buying, to be more cyclical than the more primary residence-driven metro markets, thus leading to the holiday town house price index showing higher growth peaks and lower troughs than our major metro house price index.

In addition, much of the holiday home market tends towards the higher priced segment of the overall market too, and that segment has come under some pressure even in the big cities as affordability challenges mount.

Evaluating the major metro house price index and a holiday town index performances since early-1999, the two indices’ cumulative growth rates since 1999 are fairly close, the holiday town index having risen by 521.4 percent and the major metro index by a slightly stronger 537 percent.

That’s close enough to say that the two markets have performed very similarly over the past 17 years. But over that period the holiday town market was significantly more cyclical, booming far more impressively at the height of the pre-2008 residential boom, and slowing far more severely around 2008 and just beyond.

The holiday town market will probably continue to be more cyclical in future too. And given that we appear to have entered tougher economic times, this market is expected to underperform the major cities in the near term.

John Loos is the household and property sector strategist at FNB Home Loans.

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