House price index drop to 6.8 percent, as mortgages slow

(by Siphamandla Mkhwanazi, economist at Standard Bank)

Standard Bank’s house price index slowed to 6.8 percent year on year in October from a slightly upwardly revised 6.9 percent in September.

Sub-indices show that:

Freehold properties accelerated to 8.9 percent from an upwardly revised 8.3 percent – originally 8.1 percent – in September.

Sectional title properties slowed to 8.1 percent from 8.9 percent in September.

The weighted median price a square metre rose 4 percent month on month to R4 403, from R4 234 in September. The 2016 house prices a square metre have underperformed by between 8 percent and 22 percent compared with the previous four years.

The median price of a freestanding house applied for and approved by Standard Bank was R950 000 in October, down from R970 000 in September 2016. The median price of a flat or townhouse was R800 000, down from R810 000 in September. The weighted median price of the two was R904 184, down from R906 084 in September.

Growth in house prices has been moderating for the past four months on tougher economic conditions and rising political uncertainty. MMI/BMR’s Consumer Financial Vulnerability Index (CFVI) shows that since the fourth quarter in 2015 debt servicing capabilities has been more of a concern to consumers than their income levels, their ability to save or their ability to consume.

And, according to the NCR, 40 percent of credit active consumers had impaired records in the second quarter of 2016, up from 35 percent in the second quarter of 2015.

Household credit growth slowed to 1.2 percent year on year in September from 1.4 percent in August but, if we adjust the data for African Bank, growth slowed to 2.6 percent from 2.8 percent. Within household credit, mortgage advances (60 percent of total) slowed to 3.7 percent from 3.9 percent.

Encouragingly, SB’s financial conditions index showed a mild improvement in August, although it still indicated restrictive financial conditions.

Similarly, the BER/EY’s financial services index shows that in the third quarter of this year retail banks were still applying tight lending criteria when approving loans to households, although this had eased somewhat from the fourth quarter of 2015.

Looking ahead, we expect consumers to remain under pressure into 2017, with household expenditure only recovering in the third quarter, once the SARB starts cutting interest rates. We expect property prices to remain under pressure for the rest of 2016 and into 2017.

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