04 Feb 2013
Although house price growth improved in 2012, nominal house price growth is expected to be in the region of 2.5 percent for the year, according to the FNB House Price Index for January.
From a revised year-on-year (y/y) decline of -1.1 percent in December, the index declined further by 2.3 percent in January.
Writing in the report, FNB household and property sector strategist John Loos explains that this is caused by three things.
Firstly, there has been a base effect due to healthy price growth surge in early 2012 as the residential market showed significant strengthening.
“This has a negative impact on the y/y growth rate a year later.”
Loos says search for affordability as seen in high transaction volumes in the lower end of the market is another reason.
Lastly, the economy grew slowly in the second half of 2012 after a good first half, he says.
According to the Absa Housing Review Q1 2013, relatively low nominal house price growth of the past two years is forecast to continue in 2013.
Further real house price deflation is projected for 2013 on the back of expected low nominal price growth and headline consumer price inflation forecast to average around 6 percent this year, says the bank.
Jacques du Toit, Absa Home Loans property analyst, says factors such as the performance of the economy, growth in employment and income, living costs, interest rates, consumers’ credit-risk profiles, banks’ risk appetite and lending criteria, and property running costs are set to remain important with regard to the affordability of property.
“These will determine the showing of the residential property market this year, which will be reflected in demand and supply conditions, market activity, buying trends, transaction volumes and the demand for mortgage finance.”
Absa reveals that in 2012, nominal house price growth in the middle segment of the market (homes of 80 to 400 square metres) and priced up to R3.6 million in 2012) slowed down to less than 1 percent from almost 2 percent in 2011.
In real terms, house prices deflated for the second consecutive year.
The category for affordable housing performed the best in 2012 of the various market segments in terms of price growth.
In the luxury segment price growth was barely positive in nominal terms last year, resulting in prices deflating in real terms.
The average price of affordable housing (homes of 40 to 79 square metres) and priced up to R500 000 in 2012) increased by 6.5 percent in 2012 from 2.9 percent in 2011.
Real price growth of 0.9 percent was recorded in 2012 compared with price deflation of 2.1 percent in 2011.
In Q4 2012, the average price of affordable houses increased by a nominal 6.6 percent y/y to about R345 400 from 6.8 percent y/y in Q3 and real price growth was recorded at 0.9 percent y/y in Q4 compared with 1.6 percent y/y in Q3, says Du Toit.
Middle-segment housing (homes measuring 80 to 400 square metres and priced at R3.6 million or less in 2012) experienced nominal price growth of 0.6 percent from 1.7 percent in 2011.
He says in real terms the average price of homes in this category dropped by 4.8 percent in 2012 after price deflation of 3.1 percent in 2011.
“This caused the real price of a middle segment house to be at its lowest level since 2005 and about 17 percent below its peak of 2007.”
The average nominal price of a home in the middle segment of the market increased by 5.3 percent y/y to R1 105 100 in Q4 2012.
Du Toit points out that real price deflation in this category of housing occurred for the ninth consecutive quarter, coming in at -0.3 percent y/y in Q4 2012 after prices dropped by a real 4.2 percent y/y in the preceding quarter.
The following price changes occurred in the three middle-segment categories in 2012:
- Small houses (80 to 140 square metres): -4.3 percent y/y nominal and -9.4 percent y/y real
- Medium-sized houses (141 to 220 square metres): 3.2 percent y/y nominal and -2.3 percent y/y real
- Large houses (221 to 400 square metres): 1.8 percent y/y nominal and -3.7 percent y/y real
In 2012 price growth of 0.1 percent in nominal terms (2 percent in 2011) was recorded in the segment for luxury housing (homes priced at between R3.6 million and R13.4 million).
He says this translated into real price deflation of 5.2 percent in 2012 after adjustment for the effect of inflation (-2.9 percent in 2011).
Q4 2012 saw the average price of luxury housing dropping by a nominal 2.2 percent y/y to a level of R4 663 500, after prices rose by a marginal 0.4 percent y/y in Q3.
In real terms, the average price in this category of housing dropped for the seventh consecutive quarter in Q4 2012 by 7.4 percent y/y (-4.5 percent y/y in Q3), he adds. - Denise Mhlanga
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