File picture: James White

Johannesburg - Without a significant positive economic turnaround, national house price inflation this year will drop below the consumer price index (CPI), resulting in a loss of real wealth for the majority of homeowners for the first time since 2011.

This is the view of property services company Lightstone, which yesterday forecast nominal house price inflation at about 3.5 percent for this year.

Lightstone said this would result in real deflation in home values as the Reserve Bank battled to keep CPI within the 6 percent upper band.

“If we see a positive turnaround in the economy, the best case scenario is that the drop will be subdued and end the year off at around 4.6 percent. But on the flip side, if we have to weather any more major economic storms, house price growth could drop to 2.5 percent or even lower,” Lightstone said.

Recession risk

It said there was a real possibility of South Africa going into recession this year, resulting in even fewer people being employed and able to buy homes, more people being forced to sell their homes and generally less money available to service debt and pay deposits.

“This absence of eligible buyers and the desperation of some homeowners to sell will noticeably stifle property price growth,” it said.

Lightstone said the Reserve Bank’s monetary policy committee would also be prompted to push up the repo rate to try and keep consumer price inflation below the 6 percent target.

“This increased cost of credit will take even more potential buyers out of the market, resulting in a double whammy for real house prices,” it said.

Meanwhile, First National Bank (FNB) household and property sector strategist John Loos said yesterday that ongoing gradual interest rate hiking could be key to guiding the high indebted household sector to lower levels of vulnerability to economic shocks.

“At a time when the risk of economic shocks is rising, this may be crucial,” he said.

Loos said FNB expected the Reserve Bank’s monetary policy committee to raise the repo rate by another 25 basis points to 6.5 percent on Thursday, resulting in the prime rate increasing to 10 percent.

He said this expectation was based not only on the higher inflation rate numbers in December, but also on the recent sharp fall in the rand’s value and the drought raising food prices, all of which would lead to more inflation in coming months.

Loos said regardless of whether the Reserve Bank saw inflation as a major problem or not, it would do well to continue its gradual interest rate hiking for the foreseeable future for other more household finance-related reasons.

He said this could nudge both the household sector and the entire economy towards living within its means, lowering debt and raising saving rates.

“This is not ‘growth positive’ in the short term but can reduce the impact of ‘external’ shocks in the longer run.

“Interest rates should be focused largely on addressing important macroeconomic imbalances,” he said.