Growth in property prices reaches peak
House price growth accelerated last month to 8.9 percent year on year from 8.6 percent in May, the highest annual growth rate since June 2010, according to the latest First National Bank (FNB) house price index released yesterday.
However, FNB said the month-on-month house price figures indicated the market was losing its growth momentum, which should translate soon into softer year-on-year house price growth. There was a mild increase in real house price growth to 2.7 percent year on year in May as consumer price inflation in that month dipped to 5.7 percent.
It attributed the recent mild resurgence in year-on-year house price growth largely to the strengthening in the domestic economy late last year after two weak winter quarters.
However, John Loos, a property and household sector analyst at FNB, said a better way of examining recent house price growth momentum was to use seasonally adjusted month-onmonth data. There had been a gradual loss in seasonally adjusted month-on-month house price growth momentum since a revised peak of 1.65 percent in January this year to 0.82 percent last month.
"This slowing month-onmonth growth trend suggests a peak in the year-on-year house price growth rate should be reached soon. The recent month-on-month house price growth slowing also appears to be reflective of a housing market that is tracking short-term fluctuations in the economy and signs that economic growth in South Africa is slowing," he said.
Loos added that the loss of month-on-month price growth momentum over the past five months suggested that the year-on-year growth peak in the FNB house price index was not far off. In addition, various economic data released in recent months suggested the housing market was set to head into a "softer patch" again.
These data included economic growth, which slowed mildly in the first quarter, and real retail sales growth, which fell further in April to 4.7 percent year on year on a threemonth moving average basis from 5.9 percent in March. In addition, the manufacturing purchasing managers' index slid for a third consecutive month in May and Statistics SA's manufacturing volume growth for April dropped to a mere 0.7 percent year on year on a three-month moving average basis from 1.2 percent in the previous month.
Loos said that without any new monetary policy stimulus from a reduction in interest rates, the weakening economic environment suggested the recent slowing trend in monthon-month house price growth would continue in the near term and this would soon translate into slowing year-onyear house price growth.