Johannesburg - The residential property market appeared to be drifting away from equilibrium between supply and demand, according to FNB.
John Loos, a household and property sector strategist, said the average time a house remained on the market before being sold had deteriorated to an average of 14 weeks in the third quarter from an average of 11 weeks and one day in the first quarter.
Loos said FNB’s house price index for last month showed further slowing in year-on-year growth compared with August and had now shown slowing growth for five consecutive months.
“The slowing rate of house price growth is the lagged response to over two years of gradual interest rate hiking since early 2014 as well as a broad multiyear stagnation in the South African economy to near zero growth by the first half of 2016,” he said.
FNB’s house price index for last month rose by 3.4 percent year on year, which was a further slowing on the revised 4.8 percent growth rate recorded in August this year. The average price of homes transacted last month was R1 056 774.
Loos said the onset of some mild deflation was evident when examining house price growth on a month-on-month basis. This suggested that there might once again have been renewed economic weakness along with housing market weakening in third quarter after a mildly better second quarter.
The housing market could often be a good leading indicator of economic conditions.
Up until May this year, month-on-month seasonal house price growth accelerated after a dip early this year.
Loos said this was accompanied by a significant uptick in the Manufacturing Purchasing Managers’ Index (PMI) after a similar dip early in the year, which was also accompanied by a return to mildly positive growth in gross domestic product in the second quarter after a contraction in the first quarter.
But Loos said more recently both the FNB house price index and the Manufacturing PMI had pointed to possible renewed economic weakness in the third quarter.
From a level in June this year of 53.7 on a 100-point scale, the PMI had dropped significantly to 46.3 by August while month-on-month seasonally adjusted house price growth had gone from plus 0.5 percent in May to minus 0.4 percent decline last month. “Therefore, if the housing market is anything to go by, it points to a possible re-emergence of economic weakness in the third quarter of 2016 after a slightly better second quarter,” he said.
In real terms after adjusting for consumer price index (CPI) inflation, the rate of house price growth was negative at minus 1.1 percent year on year in August this year after revised negative growth of minus 0.3 percent in July. Loos said the turn to real house price deflation pointed to a deteriorating market balance between supply and demand.
Other FNB indicators had also pointed to a weakening market balance, including the FNB estate agent survey average time of homes on the market.
Loos said FNB expected average house price growth to hover in low single digits in the near term, which would translate into a decline after CPI, with probably little support from a very weak economy.