Nominal house price growth will remain in single digits this year.
This is Absa’s view as the bank expects that rising consumer price inflation and interest rates will adversely affect household finances and eventually also impact the residential property market.
Jacques du Toit, property analyst at Absa Home Loans says the first quarter of 2015 saw year-on-year growth in the average nominal value of middle-segment homes in the South African residential property market being on a steady downward trend. The slowing trend in house price growth was already evident in the fourth quarter of last year. Real price growth also softened up to February this year on the back of declining nominal price growth, despite inflation trending lower in the first two months of the year.
Higher inflation towards year-end will have a dampening effect on real house price growth in coming months.
Du Toit says nominal middle-segment house price growth was recorded at 6,2% year-on-year (y/y) in March, down from 7,3% y/y in February after reaching a level of 10% y/y in the months of August to October last year. On a month-on-month basis, house price growth remained on a downward trend, with prices deflating by almost 0,2% in nominal terms in March, which was the first monthly price deflation since early 2012.
The downward trend in nominal house price growth since late last year came on the back of a subdued economic performance, continued low consumer confidence, interest rate hikes during the course last year and the prospect of further rate hikes up to late 2016.
The average nominal value of homes in each of the middle-segment categories was as follows in March 2015:
• Small homes (80m²-140m²): R868 000
• Medium-sized homes (141m²-220 m²): R1 193 000
• Large homes (221m²-400m²): R1 821 000
Real house price growth, i.e. after adjusting nominal price growth for the effect of consumer price inflation, was down to 3,3% y/y in February from 3,7% y/y in January this year, despite the fact that inflation dropped to 3,9% y/y in February. However, inflation is forecast to pick up to a level of above 6% y/y by year-end, with higher domestic fuel prices set to be a major contributing factor in rising inflation, driven by international oil price and $/R exchange rate movements. Fuel prices were already hiked substantially in March and April, which will put upward pressure on inflation in the near-term. In view of these expectations, interest rates are forecast to increase later this year and through 2016 in an attempt to control inflationary pressures.