House price growth slows: FNB

Average house price growth has continued to slow, according to the November FNB House Price Index released on Wednesday.

"The average house price growth slowdown continues, with the November FNB House Price Index recording a year-on-year rate of increase of 3.8 percent," said John Loos, FNB Home Loans strategist, in a statement.

"This is only slightly lower than the previous month's revised rate of 3.9 percent, reflecting a recent slowdown in the pace of decline in price growth in recent months."

The slowing rate of decline could be due to the September interest rate cut. The November rate cut would not yet be reflected.

The average house price for November was R787,530.

Loos said although the decline in house growth was slowing, it was too soon to say if the residential property market was starting to improve.

"Certainly our FNB Valuers' Market Strength Index suggests that our group of valuers doesn't perceive an improvement yet," he said.

Some key economic indicators suggest a few months of improved performance ahead.

"... the SARB resumed interest rate cutting in September, and we have had two consecutive half a percentage point rate cuts in September and November, which we would expect to have a mildly positive impact on residential demand in the short term."

Loos said the SA Reserve Bank's Leading Business Cycle Indicator had started to rise month-on-month recently, suggesting South Africa might experience some short term growth.

"This obviously has the potential to support slightly stronger household sector income growth."

The Leading Indicator is normally closely correlated to trends in the value of new residential mortgage loans granted, Loos said.

"Therefore, we believe that, at present and in early-2011, we should be experiencing a short term mild improvement in residential demand even when the usual seasonal factors are excluded."

Loos was cautious about the medium-term, or six months to a year from now.

"The reason is that there are signs that the domestic consumer price inflation rate may be at or near to the bottom of its cycle.

"Residential rental inflation is beginning to tick up (a major component of the Consumer Price Index), while improvements (declines) in the rate of global commodity price inflation and the trade-weighted rand have slowed."

If the inflation rate starts to turn upwards in 2011, there may not be any more interest rate cuts, leading to a "flat" market.

Loos warned that long term, a high household debt-to-disposable income ratio would hold back the residential housing market. In the second quarter of 2010, this ratio was 78 percent.

"The still-high household debt ratio, unfortunately, leads us to expect another pedestrian year in 2011 for residential property, following a very mild short term uptick," Loos said.