What’s going on with house prices? Various indices show story of some growth, but sustainability questioned. PRETORIA – If you’re interested in house price changes, trying to decipher the various indices that are out there could prove challenging. On Thursday Absa released its house price index, which shows that price growth in the South African housing market slowed down even more in July. Important to note is that while growth slowed down, there is still growth to be seen. On a real basis (stripping out the impact of inflation), Absa’s house price index show that the average price of small houses (80m2 to 140m2) has climbed 1.4% in June. The real year-on-year change is not yet available for July as the consumer price index for that month has not been announced by Statistics South Africa yet. On a real basis the medium category of housing (141m2 to 220m2) is showing even more subdued growth at only 0.2%, where the large category is strides ahead with real year-on-year price growth of 6.4%. The average nominal value of homes in each of these categories is as follows for July 2013: · Small homes: R742 600 · Medium-sized homes: R1 064 900 · Large homes: R1.697m Now where it gets challenging is when you compare this objective index trend with FNB’s subjective property barometer through its FNB Estate Agent Survey. Released on Wednesday the survey tells a story of enthusiasm and optimism in the lower end segments. “The four income segments are self-defined by the agents working the areas and comprise the High Net Worth segment (average 2nd quarter 2013 price R3.636m), the Upper Income segment (average price R2.411m), the Middle Income segment (average price R1.15m) and the Lower Income segment (average price R724 700),” household and property sector strategist for FNB, John Loos, says in a statement. The activity level by income/price segment (on a scale of 1 to 10 and the result a subjective perception response) the Lower Income segment comes out top with an average rating of 6.52. The Middle Income segment follows on 6.46, while the Upper Income segment is at 6.08 and the High Net Worth segment way below on 5.82. So clearly estate agents believe that demand is strongest in the category where house prices are around R700 000, but if basic first year economics is accurate, demand should be pushing the prices up – which is not seen in the Absa house price index. In fact the Absa house price index indicates that the best price growth is in the Middle or Upper Income segments, where estates agents are seeing too much activity. Standard Bank’s house price index for July again shows that the nominal index growth for freehold properties is growing at 10.1% year-on-year. For sectional titles is comparatively modest at 4.2%. So what does all of this mean for house price growth – what for most people would be the biggest asset they will ever hope to own? Erwin Rode, property valuer and economist at Rode and Associates, told Moneyweb that there is no doubt that there is a bit of a surge in prices, but that he cautions against announcing that the good times are here. “I have my doubts whether it is sustainable,” he said. He believes that the quantitative easing by the United States is inflating asset prices. “We can see it in the global stock exchanges as well.” Added to that is the impact of the historical low interest rates experienced in South Africa. “At some stage the quantitative easing will come to an end and it will impact the South African economy as well,” he said.
Posted on: Tue, 13 Aug 2013 06:06:03 +0000
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