Johannesburg - There were early signs of renewed near-term slowing in the economy and the residential property market after an apparent slight improvement in the second quarter of this year, according to First National Bank (FNB).
John Loos, a household and property sector analyst at FNB, said there had been a short bout of mild demand driven strengthening in recent months of FNB’s residential market strength index. But month-to-month demand growth had started to slow again from 0.16 percent in July to 0.13 percent last month.
Loos said this was not significant as yet but meant a near-term weakening in the index. However, he said the month-on-month house price inflation rate had slowed for three consecutive months up to last month.
In addition, the Barclays manufacturing purchasing managers index (PMI) last month declined for the second consecutive month and showed “a nasty drop” from 52.5 on a 100-point scale to 45.3 last month, he said.
Loos stressed a PMI level below pointed towards a contraction in manufacturing.
Fluctuations
He said the PMI was the most up-to-date economic indicator and its short-term fluctuations often correlated well with fluctuations in month-on-month house price inflation, the demand strength index and the valuers market strength index.
“With such a key high frequency data release (pointing) to possible economic slowing three months of month-on-month house price slowing to date, and more recently one month of slowing growth in the demand rating, early data evidence was pointing to a renewed near-term slowing in the economy and the residential market, the two being interlinked after a slightly improved second quarter,” he said.
Loos said the temporary acceleration in month-on-month average growth in the second quarter was probably driven by the Western Cape, which recently moved in a different direction to most of the country.
Lightstone revealed last month that house prices in the majority of metros had continued to grow at an annual rate of between 4 percent and 6 percent since the subprime mortgage crisis of 2007/08.
Classic drivers
However, Lightstone said Cape Town was the odd metro out, with prices continuing to rise even further and currently at 12 percent. It said the classic drivers of house price inflation, including interest rates and inflation, did not seem to be the main drivers of annual growth in Cape Town.
Lightstone said the differences between provincial economic growth and inflation was not significant enough to explain the divergence in house price inflation. It believed this higher annual house price growth could be attributed to the migration trends of repeat homeowners.
Lightstone said when repeat homeowners moved to a different province, their province of choice was either Gauteng or the Western Cape, but most repeat homeowners who moved from a metro preferred settling in the Western Cape.
It said the growth in repeat homeowners in Gauteng and KwaZulu-Natal had remained constant or decreased slightly between 2010 and last year, but had a consistent upward tend in the Western Cape and rose by 1.1 percent last year.
“The cumulative effect of this migration could lead to an increase in house price inflation. This makes sense as an increase in homeowners would naturally lead to an increase in demand for property,” Lightstone said.
BUSINESS REPORT