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Friday Sep 02, 2011

FNB house price index up 6%

August FNB House price numbers are providing a mixed picture for the residential property sector according to John Loos, property market strategist at FNB Home Loans.

In year-on-year (y/y) terms, the FNB House Price Index growth rate continued to accelerate, he said; the index rose by 6.1% y/y in August. This represented an increase on the revised growth rate of 4.8% for July and a reflection, with a lag, of the mild resurgence in demand in the summer of 2010/11.

Loos said that in real terms, adjusted for CPI inflation, the y/y percentage change for July was still mildly negative to the tune of -0.5%, given that CPI inflation in July was 5.3% and the revised nominal house price growth rate for that month was 4.8%. Given the further acceleration in nominal house price growth in August, it was quite possible that last month would show the first positive real y/y house price growth since October last year.

He said that on the other hand, while the seasonally-adjusted month-on-month growth rate continued to point to still-positive growth, it also indicated a slowing in growth momentum. This arguably reflected some weakening demand, more recently during the winter months, not only as a result of seasonal factors but also due to no further interest rate cuts in 2011 as well as slowing economic growth (and likely household income growth too). Simultaneously, FNB's valuers continue to suggest a deteriorating balance between supply and demand.

Despite the recent rise in y/y house-price growth, FNB's expectations remained modest against a backdrop of slowing economic growth with a not-insignificant risk of global and local recession according to Loos. In addition, monetary policy was not as relaxed as it seemed when examined in real terms. Real interest rates, by both of FNB's measures, have been declining in recent months.

Loos explained that without much economic or interest rate stimulus, FNB's valuers implicitly suggested that there should be further market correction to come. Whether that correction was in nominal or real terms, though, for the time being the FNB valuers' impressions of the market imbalance, coupled to the FNB Estate Agent Surveys of recent quarters, which estimated the average time of homes on the market to be near to a lengthy four months, suggested that this recent surge in y/y house price growth was not yet the start of a sustained longer term accelerating trend.

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