Positive growth in South African house prices

After all the hedgehog and fox analogies, it’s time to head back to some economics.

We are all aware of the devaluation of the Chinese currency by now but, if the market is anything to go by, the effect has been almost brushed off. I sense that the American decision to retain interest rates has probably had something to do with that as the Chinese story is certainly not a good one just yet. Stories of vacant buildings in Shangai still abound, anecdotally or not. As regards the Fed’s decision, the States seem to be waiting for a rise in interest rates to signal that their economy has fully turned the corner and is on, hopefully, a sustainable Up. Sadly, a rising interest rate in the USA will not be good for the Rand as money which has been invested in emerging markets could flow back to the safe-house of USA interest-bearing deposits. Certainly, other countries in BRICS are also having a torrid time as are the oil producers. Nigeria is now facing their worst recession caused by extraneous factors, namely, the sustained collapse of the oil price.

So we have a recovering JSE, a weak Rand, poor GDP growth numbers and “headwinds” from China which result in collapsed commodity prices. Thank goodness for the reduction in the oil price and global inflation which still seems to be holding low or at very low numbers.

Against this backdrop, house prices are holding their own. FNB’s Valuers’ Index makes interesting reading. They sense that stock remains the primary reason for house prices being firm against last year’s numbers. Their Valuers’ Market Strength Index has grown in September 2015 to 51.32 and remains above the base level of 50. This measure implies that market strength is growing sustainably but what is more interesting is that the Valuers see the supply shortage remaining in the medium-term. To FNB, that is above expectation. From my viewpoint, I cannot disagree with them as many of the indices and articles talk to really tough times for Consumers.

However, the good news continues as both ABSA and FNB note that nominal house prices continue to rise. According to FNB, for the 1st 9 months of 2015, the average year-on-year house price inflation was 5.7%. That is a slower rate of increase in prices than the 7.1% for 2014. The point is that it remains a positive real rate of growth in the FNB methodology that uses a fixed weight house price index. Similarly, the ABSA nominal and real house price indices project at around 6% and 1.3% for 2015. Both banks project downward pressure and resultant negative house price growth next year with inflation projected to rise from 4.7% this year to about 5.8% next year.

The FNB article, 23 September 2015, puts a rather interesting spin on homeowners’ financial stress. Their sense is that there is less pressure on homeowners, as measured by the tendency in tougher times to downscale, because of the Banks’ stricter criteria for lending since 2008. In fact, the Household Debt-to-Disposable Income ratio has declined by almost 13% from 88.8% in 2008 to 77.4% by 2nd Quarter 2015. That is really significant. Corroborating with another financial market with which I am close, such a decline can certainly be attributed to the good work of the National Credit Regulator [NCR] who has been fastidious in demanding responsible lending. Their primary instrument has been the Income Affordability ratio used for credit scoring models. Lower debt levels across the board of LSM segments is good for South Africa.

I guess the question now is: How do I respond as an Originator or Estate Agent to these facts? We have repeatedly said that hard work wins. An attitude of never-say-die listing and selling and excellent relationships between successful people has a way of pulling through tough times. Homeloan Junction stands by to be the Originator of Choice for your homeloan financing.

Yours in Property.