Is house price growth accelerating?
Jacques Du Toit, senior property analyst at Absa Home Loans, says house price deflation for full-year 2009 might end at just 0.5%. That’s not bad considering the tough economic conditions that prevailed for most of the year. The group’s November 2009 House Price index is another in a range of measures pointing to a steady improvement in housing market conditions. But that doesn’t mean homeowners are out of the woods.
Real house price growth dipped into negative territory early in 2008 and looks likely to remain there through the first quarter of 2010! After accounting for inflation South African’s homeowners have been going backwards for more than two years! The use of real and nominal measures in house price statistics can be confusing. What you have to realise is that you can lose relative value in your investment even if its price goes up. Let’s say you purchase a new home in January 2010. If house prices appreciate by 3% over the year – and inflation averages 6% – then the money you invested in your house has less purchasing power at year end. Your nominal growth is 3% while your real growth is -3%!
Where R1 million buys you a middle segment house
What can we learn from Absa’s November 2009 numbers? The first observation is that the average house price in the so-called middle segment of the market topped R1 million – R1 006 300 to be exact! Absa’s middle segment statistics are based on the total purchase price of all houses between 80m² and 400m² in size, and costing up to R3.1 million. Houses in this category reported nominal price growth of 4.7% year-on-year (y/y) to November 2009. The y/y increase to October stood at 3.4%. After adjusting for inflation house prices in this category contracted marginally, down 2.4% y/y October.
The price of an average house in the small houses category (being houses between 80m² and 140m²) declined by 1.7% y/y in nominal terms to November 2009. The average price in this category now stands at R665 100. Real prices in this category have declined 7.7% y/y to October. The real prices of medium sized houses (141m² to 220m²) fell 9.2% y/y October, while those of large houses (221m² to 400m²) contracted 2.8% y/y October. These statistics contradict the market expectation that entry level houses would weather the economic downturn better than the overall market. Instead houses in the higher price categories have withstood market pressures best.
Bunker down for a slow recovery
There won’t be fireworks in the local property market next year. Absa expects a gradual recovery through 2010. The good news is a number of economic indicators point to a rosier domestic business environment. “The South African Reserve Bank leading business cycle indicator has risen uninterruptedly for a period of six months to September 2009,” says Absa. This measure is clear proof that all sectors of the economy are beginning to ‘fire’ again. The latest Statistics SA GDP growth number was also cause for celebration. The country posted quarter-on-quarter real GDP growth of 0.9% in Q3 2009, ending the technical recession and dispelling uncertainty over the duration of the downturn. The purchasing managers’ index (PMI) and various measures of business confidence have also improved recently.
But there are still reasons for concern. Households remain heavily indebted. And second round effects from recent job losses haven’t filtered through the economy yet. You won’t witness a remarkable house price recovery until the sceptre of declining real disposable income vanishes. Based on the group’s expectation for nominal house price and consumer inflation, they conclude: “Real house prices are forecast to decline for a second consecutive year in 2009, with at best small increases next year.”
Editor’s thoughts: Gradual is the keyword when describing the coming house price recovery. The best you can expect for through 2010 is moderate growth in nominal house price inflation to the late single digits. But the consumer will have to win the battle with high debt levels before transaction volumes pick up significantly. Are you thinking of putting your property on the market early in 2010? Add your comments below, or send them to [email protected]
