From our July FNB House Price Index, we saw some slowing in year-on-year house price growth. This doesn’t come as a surprise, as we had already been seeing slowing month-on-month growth in recent months. Certain leading indicators had also pointed to a near term return to weakening in sentiment and economic performance after initial promise of strengthening early in the year.
These economic indicators include a weakening in the SARB Leading Business Indicator in the most recent 3 months’ worth of data, and a significant dip in both Business and Consumer confidence after slight improvements in the 1st quarter.
In real terms, adjusted for CPI, the price correction continues, an event that we see as essential since having moved to being an almost zero growth economy. We believe that high real house prices will have to decline significantly to reflect this longer term economic weakness that appears to have set in.
One possible stimulus is the onset of SARB interest rate cutting, a 25 basis point repo rate cut having taken place in July. We don’t believe that one lone cut is sufficient to move the housing market significantly, but should this be the start of a series of cuts, it is conceivable that house price growth in 2018 could be mildly stronger than the 2017 year-to-date average year-on-year price growth rate of 2.8%.
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