House Price Growth In 2018 Expected To Be Lower Than Inflation Due Economic & Political Uncertainty
It will be another year of heightened housing activity pressure in 2018, with property economists already forecasting below inflation growth for South Africa’s house prices.
The residential market has been downgraded as a whole for 2017, with a number of property economists expecting house prices to slow between to 3.2% and 3.5%. This forecast is markedly lower than 2016’s growth of 5% and 6% in 2015.
FNB property strategist John Loos and Absa Home Loans property analyst Jacques du Toit are, for now, expecting nominal house prices (before adjusting for inflation) to grow by 4.7% and 3.5% in 2018 respectively.
When factoring in an expected average inflation rate of 5.2% in 2018, house prices are expected to decline by up to 1.7%. House prices have fallen in real terms (after adjusting for inflation) since early 2016, but the rate of decline has been lower than the 16% decline seen in 2009.
Loos said the decline in house prices is not surprising given the worrying state of the economy, junk downgrades of SA’s credit ratings and low levels of consumer and business confidence. “Consumer confidence is in a dismal state and people are being conservative in their spending and borrowing patterns,” he said.
Housing activity typically mirrors the state of the economy, and with the economy expected to grow by a paltry 0.7% in 2017, 1.1% in 2018 and 1.5% in 2019 (according to the National Treasury), house price growth will likely falter in the coming years.
Absa’s Du Toit supported Loos’ view saying lower consumer confidence levels will likely result in prospective homeowners postponing new property transactions. “Existing homeowners will react in such a way that they will renovate their properties rather than upgrade to an expensive property. The property market will be affected in terms of lower transaction volumes, mortgage lending and demand,” said Du Toit.
One of the indicators of weak housing demand is the average time a property is on the market for sale, which has peaked to 15 weeks, similar levels last seen in 2013, figures from FNB indicate.
Declining house prices is not necessarily a bad thing, said Loos, as it allows first-time homebuyers to enter the housing market at cheaper prices. According to FNB, first-time homebuyers as a percentage of total buying reached a national average of 20.26% in the third quarter of 2017, which is lower compared with highs of 30% in 2005.
More encouraging is the fact that households are becoming less indebted if the household debt-to-disposable income ratio is anything to go by. The ratio has been steadily declining from the highs of 87.8% in the first quarter of 2008 to 72.6% in the second quarter of 2017, helping households become less vulnerable to economic shocks and higher borrowing costs.
A positive outlook for the housing market also hinges on the outcome of the ANC elective conference in December, which is a key event for SA’s economic and political trajectory. Given that many potential homebuyers are currently adopting a wait-and-see attitude, it seems fair to assume that if there is clarity on the political future and a positive outlook, there is likely to be a considerable pent-up demand which will emerge – resulting in a marked improvement in the local market.