House price deflations almost a thing of the past
November 2, 2009
Johannesburg - Year-on-year house price deflation is "almost a thing of the past," FNB said on Monday as it released its House Price Index.
The index was already inflating on a month-on-month basis, John Loos, FNB home loans strategist said in a statement.
In October, year-on-year average price deflation was -1 percent, significantly better than September’s revised -3.6 percent rate of decline. Loos said.
On a month-on-month basis, the average price index rose by +3.4 percent, which was unchanged from September.
"Month-on-month figures should be read with caution, though, as there is an element of seasonality in the numbers," Loos said.
The overall index level for October stood at 287.1, implying that on a cumulative basis the average house price still remained 187.1 percent higher than the July 2000 level, the point at which the FNB House Price Index started at a level of 100.
"The average house value for the month measured R751,323," Loos said.
The October house price numbers were much as expected.
"The FNB Property Barometer survey of estate agents informed us of strengthening demand as from late-2008, while as a home loans bank we began to feel the positive impact of this year’s series of interest rate cuts manifesting itself in higher transaction volumes.
"This was bound to ultimately lead to a resumption of rising prices in some form, and we are now pretty much at that point."
Loos said, however, that the outlook remained "mediocre".
"It would appear that the SA Reserve Bank has come to the end of its interest rate cutting phase.
"There may be an outside probability of a slight further rate reduction, but the Firstrand view is that prime rate is likely to remain unchanged for a lengthy period until late 2010, at which point the next interest rate move is expected to be up."
Loos said for the time being, the possible end of interest rate cutting should not derail the property recovery, as much of the positive stimulus from interest rate cuts fed into the market with a considerable lag.
However, by about mid-2010 he expected that stimulus to have fully fed through, implying that an important contributor to the residential market recovery would no longer be there, should his view on interest rates be more-or-less correct.
"Then it is up to the economy to contribute more strongly.
"Can the economy come to the party? ... Indications are that this looks to be increasingly the case."
Loos said the SA Reserve Bank's Leading Business Cycle Indicator for August showed a further month-on-month rise of 2.2 percent.
"However, we continue to warn against expecting too much.
"While we do believe that the recession is at its end (for now at least), the platform off which the USA hopes to launch its economic recovery doesn’t appear very stable, with that country’s various debt and debt-service ratios still at or near the highest levels in history.
"In South Africa, too, the household debt to disposable income ratio has made little downward progress, due to incomes being under huge pressure, making debt ratio reduction slow going."
According to Loos, a mediocre global economic expectation, and a local household sector that could not be expected to spend the economy to far greater heights, implied a fairly moderate economic growth expectation of around only two percent next year, which would not be a huge stimulus to the market.
"Realistically, therefore, while we expect to see a move back to house price inflation as 2010 approaches, the expectation is that average price inflation for next year will be moderate at around five percent for the year, and that late in 2010 we may well see the market "flattening out" somewhat as the interest rate stimulus wears thin. - Sapa
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