Could 2018 be a year where SA’s house prices begin to recover and finally track inflation?
Property economists are expecting more of the same in 2018 given that house price growth has barely kept up with inflation over the last two years.
In fact, house prices have declined in real terms (after adjusting for inflation) since January 2016, at one point declining by 6% – a similar level of decline last seen in the fourth quarter of 2009.
At the time, SA was grappling with a technical recession following three quarters of negative GDP growth and the world continued to reel from the global financial crisis.
Since then, housing activity has come under pressure and most recently, nominal house prices (before adjusting for inflation) grew by an average 3.7% in 2017, according to FNB. This is the third consecutive year of national average house price growth slowdown from a multi-year high of 7% reached in 2014. Growth has since slowed each year, to 6% in 2015, 4.8% in 2016 and 3.7% in 2017.
FNB household and property sector strategist John Loos estimates that in real terms, house prices declined by 2.4% in 2017 based on 11 months’ worth of inflation data. Official inflation data for 2017 is scheduled for release on January 24.
Loos said the decline in house prices was not surprising given the worrying state of the economy, junk downgrades of SA’s credit ratings and low levels of consumer and business confidence. Housing activity typically mirrors the state of the economy, which is expected to grow by a paltry 0.7% in 2017, 1.1% in 2018 and 1.5% in 2019, according to National Treasury.
Judging from a number of house price forecasts, the decline in house prices might slow down. Absa Home Loans property analyst Jacques du Toit expects average house prices to shift a little higher to about 5% in 2018. FNB’s Loos expects similar house price growth.
Although this is not a major improvement, the forecast is based on a marginal economic growth improvement in 2018 and one interest rate hike, which is not expected to have a dampening effect on the housing market.
After adjusting for inflation, house prices are not expected to grow in 2018, an antithesis to the trend of declines over the past two years. The SA Reserve Bank expects inflation to average 5% in 2018. The inflation outlook improved in 2017 due to food inflation falling to single digits from highs of above 10% in previous years.
SA political uncertainty
The 5% house price growth forecast hinges on a number of factors: mainly the political and government policy environment especially with 2018 being the run-up to the 2019 general election, said FNB’s Loos.
“Uncertainty around policy direction makes forecasting even tougher than it would be under conditions of greater certainty, posing significant risks to forecasts,” he said.
Widely-publicised rating agency downgrades for the country, should they occur, can quite easily dampen national sentiment, and this can easily feed into a housing market either directly, or indirectly via the economic impact.”
Dr Andrew Golding, chief executive of the Pam Golding Properties, supported Loos’s views, adding that Malusi Gigaba’s maiden annual budget speech as finance minister, to be delivered in February, will impact on business, consumer and market sentiment.
“It is expected that SA’s residential property market will continue to maintain its resilience, reflecting an ongoing healthy appetite for property investment – particularly in major metros and key hubs,” said Golding.
“The fact is there is a pent-up demand from a groundswell of aspirant buyers wanting to acquire a foothold in the property market, while others in the marketplace – both first-time buyers and existing homeowners – are seeking homes to buy or rent as career and lifestyle changes dictate a change in address.”
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