House prices and sales have come under renewed pressure in recent months, following what now appears to have been a brief "Ramaphoria"-induced spike in housing activity earlier this year.
The latest data from various industry players shows that the housing market has resumed its overall decline, in terms of both price growth and transaction volumes.
Sales numbers appear to be down to levels last seen in 2010, when the housing market hit rock bottom following the recession of 2009.
Financial Mail’s calculations show that the average number of properties (full and sectional title) that changed hands in the first half of 2018 (January-June) came to about 24,372 a month, according to latest figures from the deeds office. That’s down 10% from the average 27,072 a month recorded in the deeds office last year (without taking seasonality into account). It’s the lowest level since 2010, when housing sales in SA slumped to about 24,645 a month (about 40% down from the levels typically recorded during the halcyon days of 2005-2007).
House price growth, which usually moves in the same direction as sales volumes, has, unsurprisingly, also been on a downward trend. Lightstone’s latest housing index, which was released last week, shows that the increase in house prices has continued its steady decline since 2014/2015, reaching a six-year low of 4% in the second quarter.
The upper end of the market has been hardest hit, with price growth in homes selling for more than R1.5m having slowed to only about 1%. That’s a marked reduction from the end of 2014, when higher-priced properties were still typically recording price growth exceeding 8%.
Latest data from FNB paints an equally bleak picture. The FNB national house price index recorded growth of a meagre 3.4% in the first six months of 2018, which is below the average of 4.2% recorded for the whole of 2017.
Though the average increase in house prices has been on a somewhat upward trend since February, FNB property sector strategist John Loos warns that the trend is bound to be short-lived. He ascribes the recent mild acceleration solely to the lagged impact of a brief improvement in sentiment in the first quarter on the back of the changes in SA’s political leadership that came with the election of Cyril Ramaphosa as president.
Loos says all indications point to market sentiment largely being back in the doldrums in the second quarter. He refers to the quarterly FNB market sentiment survey, in which estate agents reported a significant drop in residential market activity in that quarter (following a spike in the first quarter).
Loos says the reality of a still-stagnant economy and higher living costs on the back of petrol and tax hikes clearly hit home once the early optimism around Ramaphosa’s appointment started to wear off.
A further sign of a slump in the second quarter is a renewed lengthening in the estimated time it takes to sell the average house: from 14 weeks and a day in the first quarter to 16 weeks and four days in the second.
The weaker outlook has prompted Loos to downgrade his early 2018 estimates of house-price growth from 5%-6% for the year as a whole to a more muted 3%-4%.
"The signs are increasingly pointing to even slower average house-price growth [per] year in 2018 than in 2017," says Loos. If his expectation of low single-digit growth in prices pans out for the rest of the year, 2018 will be the fourth consecutive year in which the price of houses grew more slowly.
What it means
After a brief spike, the housing market has resumed its overall decline
Absa Home Loans property analyst Jacques du Toit shares Loos’s bearish outlook for the residential property market. He refers to the results of Absa Bank’s recent national homeowner sentiment index, which has also been on a downward trend of late. The overall score of this index, which reflects the percentage of survey respondents who believe residential property market conditions are positive, declined to 73% in the second quarter. That’s down from 75% in the first and 82% in the fourth quarter of 2017.
It is interesting to note that Absa’s second-quarter sentiment survey reveals that the land reform issue has played a major role in denting investor confidence in residential property.
Du Toit adds that SA consumers are also still battling financially, which inevitably makes it more difficult for would-be homeowners to buy properties and for people who already own homes to upgrade. "Despite the interest rate cut in late March, existing and prospective homeowners’ financial positions have been adversely affected by higher taxes and sharply rising fuel prices. These factors, as well as the matter of land reform, have affected property market sentiment over a wide front," says Du Toit.
Looking ahead, he says the bank expects a "relatively subdued" residential property market in the second half of 2018, which will be reflected in lower levels of market activity, buying patterns, transaction volumes, price growth and demand for mortgage finance than those recorded in the second half of 2017.