Residential property prices at 'boom time' levels

House prices, excluding the impact of inflation, remained at "boom time" levels despite having lost some ground since the end of 2007, according to FNB.

John Loos, a household and property sector strategist at FNB, said yesterday the average real house price level was 17.2 percent lower than the record high reached in December 2007 at the back end of the last residential property boom.

But Loos said the average real price level currently remained 65.2 percent above the July 2000 level, the date when the index started and the time just before "boom time price inflation started to accelerate rapidly".

Loos added that in nominal terms, without adjusting for consumer price inflation, the average house price last month was 290.3 percent above the July 2000 level.

FNB revealed yesterday its house price index last month rose by 7.2 percent year on year, which was slightly higher than the revised 7.1 percent in October.

This continued the mild short-term acceleration in house price growth had emerged in recent months following the prior gradual slowing trend that started early last year after house price growth hit a multiyear high of 8.6 percent at the end of 2013.

In real terms, after adjustment for consumer price inflation, the rate of house price growth rose to 2.3 percent year on year in October from 2.2 percent in September.

The average price of homes sold and bought last month was R1 046 406.

However, Loos believed the mild recent uptick in year-onyear house price growth would be short lived. This was suggested by already two months of slowing month-onmonth house price growth.

He added that there was very little to enthuse about economically at present and some key high frequency indicators released last month looked poor.

The manufacturing PMI had returned to negative territory in recent months, new vehicle sales remained in a sharp year-on-year decline and electricity sales declined a further minus 3.8 percent year-onyear and was now minus 7.2 percent lower than the multiyear high reached in May 2011, he said.

Loos said with the risk of recession looming large, there appeared little to support average house price growth at currently positive real rates as the country headed towards 2016.

He added that the latest SA Reserve Bank's leading business cycle indicator for September declined year-on-year by 5.5 percent, the most rapid year-on-year decline since July 2009. Reserve Bank last month raised the benchmark to 6.25 percent last month.

"FNB's valuers already perceive residential demand to be slowing. A supply constrained market, however, keeps a reasonable market balance for the time being." he said.

Jacques du Toit, a property analyst at Absa Home Loans, said last month that house price growth had been on a steady downward trend since late last year and was forecast to remain in the single digits for the rest of this year and 2016.

Du Toit said lower price growth was forecast for this year and next year largely because of trends in and the outlook for the key macroeconomic and householder sector related factors.

"In view of expectations for nominal house price growth and consumer price inflation, low real price inflation is projected for this year, with prices to remain virtually flat in real terms in 2016."