Detached

DETACHED?

I loved reading John Loos’ Property Barometer – 2017. John, together with Jacques du Toit of ABSA , is one of the most experienced property market commentators in South Africa. His Barometers are both scientific and appealing. Bad news when revealed, but also good when the tide turns. I am always also struck by “what could have been” if not for a few negative factors. Our president, now for years, has featured in the “what could have been” column and none the least, last year. When we think how we came out the blocks in 2016 expecting 1.2%+ growth and how, despite the technical aberration of 2% in the 3rd quarter of 2017, we only have managed 0.7%, it is good to read John quite up-ish on the scientific numbers for House Price Growth.

Let’s quote FNB and then make some early-2018 points:

“2017 saw the FNB House Price Index growing by 3.7%, a slowing on 2016, and the 3rd consecutive year of slowing annual average price growth. We had expected a slower house price growth rate in 2017, with the country’s economic growth performance having stagnated for some years.

However, monthly house price growth has been accelerating recently.

 

2017 FNB HOUSE PRICE INDEX PERFORMANCE

2017 turned out to be the 3rd consecutive year of national average house price growth slowdown. From a multi-year high of 7%, reached in 2014, the FNB House Price Index’s average annual growth slowed each year, to 4.8% in 2016 and then further to 3.7% in 2017.

Based on 11 months’ worth of CPI inflation data, this translates into an estimated decline of -2.4% in real terms (adjusting house price growth for consumer price inflation).

However, from a low of 1.5% year-on-year house price growth in December 2016, the rate gradually rose to reach 6.1% in December 2017, further up from a revised 5.5% rate for November 2017.

In real terms, house price deflation that had occurred earlier in the year gradually dissipated, and by November we saw a slightly positive year-on-year real house price growth rate of 0.8%, house price growth moderately exceeding CPI (December CPI data is not yet available).”

Under the circumstances, this is truly good news! Could it be better? Of course, but given the state of the economy, we could have seen:

 

  1. A deeper dive of the real HPI with Inflation higher and Interest Rates higher, thus depressing markets into falling residential prices.
  2. Negative sentiment prevailing in the minds of Consumers with depressing Consumer Confidence.
  3. Even more destructive politics approaching the Elective Conference.
  4. A Full Junk Status with Moody’s making its final move.
  5. Drought in the Western Cape crippling the pearler of a run on property prices in the province.
  6. The practical collapse of the Eskom cashflows.

 

“Bleak”, would not have been the word to describe the economic landscape. You can only imagine.

 

Instead, we have:

  1. A 6%+ increase in House Prices in December 2017.
  2. Cyril Ramaphosa as the president-in-waiting.
  3. The Eskom board rejuvenated with Jabo Mabuza and Mark Lamberti [the two I really know, but I’m sure there is still much serious competence] in concert at senior level firing sham re-appointments of Koko and the like.
  4. Good news coming out of Joburg’s business community despite one of their own, being Steinhoff, toxifying the air.
  5. Mike Brown and the likes inviting the ANC President to re-engage Business as Pravin had envisaged the rescue before the Junk status nightmare.
  6. Clean-ups under way in Joburg and Pretoria as fast as possible.
  7. Our SARB and the FIC free of state capture and our Treasury pulled back from the brink. You just have to listen to smooth Gigaba to realize that and, when last did you hear about Nuclear?
  8. Late but not least, some action being taken by the NPA and AFU against the Guptas.
  9. A continued stay of execution from Moodys as regards their Negative Watch for a full downgrade.

Truth be told, if the Cape Town City Council had been one year ahead of itself with the drought measures, there would be much cause for celebration.

Not the best performance of our country but certainly it could have been worse. As I said in my first blog for 2018, I am convinced that CR’s leadership will shine through and that we will see rapid change taking place in critical areas starting [with an excellent start] with Eskom.

It remains for us to be focussed and positive, using every scrap of good news to motivate our actions and be successful.

In closing on the Title’s question, is there a possible detachment between rising house prices, which generally indicate a lively market, and consumer confidence? It seems counter-intuitive to me as over the years. consumer confidence has been the main driver but there is a thing developing called “-fatigue”. Corruption-fatigue, Bad News-fatigue, Politics-fatigue, Negativity-fatigue etc. People just gatvol of everything being down-and-out and needing to just get on and live their lives somewhat normally. If you’re moving from Bloemfontein to Joburg you could sell your house and “rent for a while until things improve”. However, could it be that people are saying “this is as good as it gets so let’s just get on with life”, or, “now is a good time to buy”. Either way, unless December’s number is just a statistical aberration, there seems to be an inexplicably good rise in prices which even has John Loos excited. If I’m right, agents and originators score. If I’m wrong, I’ll apologize. But, for sure, we will have a better year than last year – that I’d bet on.

Yours in Property 2018.

Jack Trevena

Jack Trevena

With over 30 years of experience in the banking and home loan industry, my hope it is share what I have learnt over the years with my blogging community, inspire conversation around the subject and in the process discover unique insights into this ever changing environment.
Jack Trevena

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