Johannesburg - Electricity and utility tariffs and municipal rates are raising housing inflation.
John Loos, a household and property economist at FNB, said yesterday that the consumer price index (CPI) for housing rose to 6.52 percent year on year last month from 6.48 percent in May.
But Loos said housing inflation remained the second-biggest contributor to overall CPI inflation and remained stubbornly above the Reserve Bank’s 6 percent upper inflation target limit despite it being one of the less volatile sub-indices of the CPI.
“The most troublesome component of the CPI for housing remained electricity tariff increases at 11.3 percent year-on-year inflation and municipal, water and other services at 9.81 percent,” he said. Loos said the home maintenance sector by comparison appeared somewhat depressed with price deflation of minus 0.45 percent.
He said this was possibly caused by home maintenance being partly “crowded out” by huge tax and tariff increases of municipalities and utilities.
Loos said the slight month-on-month rise in housing inflation last month was also partly driven by a slight acceleration in actual rental inflation and owner equivalent rent.
He believed a gradual acceleration in rental inflation could drive a mild acceleration in the housing CPI inflation rate in the near term.
Loos said first-time home buying appeared to have started to slow because of rising interest rates and a weakening economy, resulting in a portion of those aspirant first-time buyers postponing their purchase and remaining in the rental market for longer.
This would provide support for rental demand, he said.
Loos also anticipates a growing group of home sellers planning to “rent down” rather than “buying down” because of financial pressure related selling by homeowners to smaller and cheaper homes.
But Loos said the acceleration in rental inflation caused by this would not be strong because tenants had their own financial limitations “in these toughening financial times”.
Loos added that FNB expected a mild increase in household sector mortgage non-performing loans between this year and 2018. He said various indicators in the home-owner market had for a while pointed to mounting financial constraints or, in some cases, a small rise in financial stress but no indicators yet pointed to “severe financial stress”.
The indicators of a softening housing market included a decline in the estimated percentage of sellers upgrading, slower levels of home maintenance and upgrades and a slight increase in the percentage of sellers selling to downgrade because of financial pressure.
Standard Bank reported that its house price index edged up to 7.3 percent year on year last month from the revised 6.6 percent in May.
Standard Bank economist Siphamandla Mkhwanazi said sub-indices showed that freehold properties rose by 8.7 percent year on year last month from a revised 7.8 percent in May while sectional title properties were flat at 9.6 percent.
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