Average price of homes transacted in September was R952 655. - DOWNLOAD THIS INTERVIEW SIKI MGABADELI: The FNB House Price Index has seen a slowing year-on-year growth once again in September. According to the index, the average house price for the month rose 5.5% year on year, and that’s lower than the previous month’s revised 5.9%. And it represents the ninth consecutive month of gradually slowing price inflation since the 8.5% year-on-year rate recorded in December last year. The average price of homes transacted in the month was R952 655. John Loos is household and property sector strategist at FNB Home Loans, and joins us now. John, thanks for your time this evening. Not very good, but I suppose its better than an accelerated production – right? JOHN LOOS: Well, yes, Siki. Its not bad. It’s a little bit below CPI inflation now, so that means real house-price decline. But ja, I guess if you are an aspirant buyer, low house-price growth or maybe even real price decline is not bad. Its only the owner who wants it to accelerate fast. If you look at the reality, if you look at the economic realties in South Africa, weve got a very flat, very weak economy. I’d be concerned if I saw strong double-digit house-price growth, for instance, because that would be bubbly I think. Its got to more or less reflect the economic realities, which are weak at the moment. SIKI MGABADELI: But you are convinced of the possibility of a renewed price-growth acceleration that may not be far away. What does that mean? What does “not far away” mean? JOHN LOOS: Well, this is the interesting thing – that if we look at the month-on-month growth rate, as a seasonally adjusted series, it looks like there is a slight acceleration in that growth rate, although that’s still low. But whats more interesting is our FNB Valuers Market Strength Index. They rate demand and they rate supply, and their perception is in recent months a renewed acceleration in the increase in demand and the decrease in supply, and therefore the improvement in the market balance. So its possible – now typically the trends in this index more or less track the trends in the house-price index, so its plausible that we may see a re-acceleration in house price growth, given that this has been a reasonably good indicator of direction. SIKI MGABADELI: I was going to ask you about the correlation between this Valuers’ Market Strength Index and the direction of hose-price growth. JOHN LOOS: It is typically pretty good. Sometimes there is a bit of a leader or a lag between the two, but not for long. Generally they move in the same direction. As you would expect, valuers are on the ground, they’ve got their ear to the ground, they know, they see market trends in their areas that they value often before it comes into prices. So you would expect it to move in a similar direction. SIKI MGABADELI: So demand is in a better space, but supply not so much. But we are in a rising interest-rate cycle, as the MPC keeps remaining us, John. So what does that mean, do you think, for future demand? JOHN LOOS: Interesting, if you look at our Valuers’ Market Strength Index, the rate of growth slowed late last year, early this year, especially early this year, and then started to accelerate again, for example, months ago. I just have a suspicion that what may have happened is some got a fright with the first interest-rate hike in January. We normally do, because we always think that interest rates will stay low forever, don’t we? SIKI MGABADELI: We do. JOHN LOOS: And they don’t. Perhaps there was a bit more caution in the market for a while and that just subdued the rate of improvement – it didn’t really impact negatively, but just maybe slowed the growth down. And since then weve had two meetings unchanged, and then a small 25 basis point hike. And the signals from the Reserve Bank have been yes, they want to normalise interest rates – which means a little bit higher – but that they are probably gong to do so at a very, very slow pace. That’s the impression they give. And perhaps things have calmed down again and the confidence is being restored and it could mean that we get a bit stronger now. SIKI MGABADELI: What do you think the main downside risk for the residential property market is? JOHN LOOS: Well, if you look at the residential property market itself – I don’t see why it spreads speculative activity and all that craziness of a decade ago. It looks a pretty rational place. The overwhelming majority are buying because they want a place to live, and that’s a healthy situation. But the market is supported by a very unbalanced economy, and that’s reflected in this massive current-account deficit of South Africa. Weve had ratings downgrades already. Foreign capital inflows, necessary to fund that big current-account deficit, may not be forthcoming as the US Federal Reserve tightens its monetary policy. And that’s the big risk – if you get future big shocks on the rand. And I think the risk is high when you’ve got this deficit. It can be that interest rates are forced upwards more than what we expect. We expect a very mild interest-rate hiking cycle, but it may not turn out that way if the markets have other ideas. SIKI MGABADELI: Ooooh - you and Simon are just depressing me today! JOHN LOOS: Well, its exciting, Siki, Volatility can be exciting. You want to see it in a positive light.
Posted on: Thu, 02 Oct 2014 06:00:28 +0000
Trending Topics
Recently Viewed Topics
© 2015