However, John Loos, a property sector strategist at FNB commercial property finance, did not believe this cumulative real price correction to date had been sufficient to bring real home values back in line with what were now very weak economic fundamentals.
Loos added that FNB’s house price index in real terms was still at relatively high levels at 88.9 index points higher than the January 2001 pre-boom index level after having risen sharply in the pre-2008 boom period.
He said FNB’s valuers continued to point to housing demand weakening, and with it the demand-supply balance, as reflected in the declining FNB valuers market strength index.
“This appears to explain the ongoing house price decline in real terms.”
Loos said the FNB residential demand rating declined by -1.2 percent year-on-year last month while FNB’s housing supply rating had been rising year-on-year and increased by 2.6 percent last month.
He said these two movements translated into a further decline in the FNB market strength index by -2.1 percent year-on-year to 49.61 index points to keep it below 50 for the sixth consecutive month.
Loos said a reading below 50 index points meant valuers now rated residential supply as stronger than demand. He added that with one month's house price data remaining for this year, it appeared likely that the average house price growth for the year would be slower this year than last year, making it the fourth consecutive year of average house price growth slowdown.
Loos said the year-to-date average house price growth rate for this calendar year was 3.7 percent, which was lower than the 4.3 percent last year and noticeably lower than the 6.8 percent high reached in 2013 shortly before the start of the increase in interest rates in early 2014.
Nominal house price growth for next year was expected to also be at 3.7 percent and given FNB’s projection of 5.3 percent inflation for next year, this would translate into another year of house price decline in real terms.
Loos said FNB expected slightly better but weak economic growth of 1.4 percent for next year compared with 0.7 percent this year.
BUSINESS REPORT ONLINE