House Price Index drops to 7.2% in August

The FNB House Price Index continued its trend of slowing year-on-year price growth, from a July revised rate of 10.1 percent to an August rate of 7.2 percent, said home loans strategist John Loos.

"While the declining price growth trend was expected, the pace of the decline has been slightly faster than our expectations," he said. "Base effects do play a role, with the base in the second half of 2009 having begun to rise once more."

However, the weakening also had much to do with a slowing global and domestic economy as well as a lack of further interest rate stimulus over the past 12 months.

The positive impact of the five percentage points worth of rate cuts from December 2008 to August 2009 had started to wear thin. "But a lack of interest rate cuts aside, we are increasingly concerned with events playing themselves out in the world's largest economy, the US."

Massive monetary and fiscal stimulus packages in recent years had seemingly done very little to boost that country's economy, which had been slowing again in recent times.

"Its unemployment remains high, its consumer confidence low, and the risk of the so-called 'double-dip' recession must surely be seen as very high at present."

Loos said this had implications for South Africa's economy and housing market. "Already, we have seen a slowing month-on-month growth rate in the Reserve Bank's Leading Business Cycle Indicator since late-2009, and more recently South Africa's second quarter economic growth slowed too."

By how far the economy, and therefore the housing market, would slow would depend much on the global economic situation, with the US being key. As yet, there was no reason to believe that the decline needed to be extreme.

This was because the likelihood of some renewed SARB interest rate cutting this month could provide some support, he said.

Sapa

Posted at 01:03PM Sep 02, 2010 by Editor in Residential  |