The FNB HPI was relatively flat at 3.8% y/y in March, versus 3.7% y/y in the previous month. This takes the first quarter nominal house price growth to 3.8% y/y, slightly softer compared to 4Q18 (4.1%), but much stronger compared to 1Q18 (3.2%). This means that house price appreciation still languishes below inflation, reflective of the enduring pressure on household incomes amid a depressed macro-economic environment.
FNB’s valuers rate current residential housing demand as weakening and supply strengthening. We note, however, that the pace at which properties are entering market has slowed noticeably in recent months. This, however, has not been enough to prevent a modest shift in the balance of demand and supply in favour of buyers.
Mortgage advances have been cautiously accelerating for the last 11 months or so, reaching a pace of 4.1% y/y by February 2018, the highest in 31 months. This acceleration, however, still lags behind the pace of other credit types such as unsecured credit and vehicle asset finance.
The scale of alterations and renovations undertaken by households has been declining in the last two years, in line with the FNB/BERs’ Residential Building Confidence Index. The completions data from Stats SA captures formal renovations, typically involving structural alterations. Anecdotal evidence, however, suggests that households could be favouring informal home improvements, typically of a smaller scale.
The housing market continues to be weighed on by the depressed current macro-economic environment. The conflation of declining real wages; a higher tax burden weighing on disposable income levels; the higher fuel and utility prices; and the impact of load-shedding on employment prospects will likely dampen already low levels of consumer confidence, further weighing on demand. More positively, however, the SARB’s decision not to hike interest rates as well as the affirmation of South Africa’s credit rating by Moody’s was a welcome reprieve. The benign global and domestic inflation environment suggests less pressure on the SARB to hike interest rates in our forecast horizon.
On balance, we expect house prices to reflect these fragilities and remain confined within the 3.5% to 4.5% range for an extended period. This lags behind our annual inflation forecast of 4.7% and 5.4% in 2019 and 2020 respectively. Ultimately, long-term prospects for the property market will pivot on the on the strength of the labour market and whether the current consumer reticence lifts after elections.