House price growth to tread water

House price growth to tread water

The slowdown in house price growth runs parallel with the weakening SA econ-omy.
Standard Bank’s median house price recorded growth of 0.6% y/y in September.

Standard Bank’s median house price recorded growth of 0.6% y/y in September. Standard Bank’s median house price (smoothed) posted a growth rate of 0.6% y/y in September, from 1.6% y/y in August. Growth in real terms remains negative.
The slowdown in house price growth runs parallel with the weakening SA econ-omy. GDP growth slowed to 1.3% q/q (saar) in Q2:11, from 4.5% q/q (saar) in Q1:11.
Household consumption was undermined by receding real income growth and the sluggish SA labour market.

Growth in household disposable income slowed to 4.1% q/q (saar) in Q2:11, from 5.4% q/q (saar) in Q1:11. This slowdown was mirrored by real household con-sumption expenditure growth decelerating to 3.8% q/q in Q2:11, from a robust 5.2% q/q (saar) in Q1:11.
Data from Statistics South Africa’s Quarterly Employment Statistics shows that a mere 7,000 jobs were added in the formal non-agricultural sector in Q2:11, com-pared to 38,000 jobs in Q1:11. The formal non-agricultural sector, after losing 349,000 jobs in 2009, has added just 133,000 jobs since 2010.
Consumer confidence declined, with the FNB/BER Consumer Confidence Index falling to 4 pts in Q3:11, from 11 pts in Q2:11. Survey participants are particularly pessimistic about their future financial position as well as the state of the SA econ-omy.
Household credit growth muted despite a historically low interest rate environment.

Growth in total credit extension to households eased to 5.2% y/y in August, from 6.6% y/y in July. Growth in mortgage advances mirrored this decline, registering 1.6% y/y in August, from 3.0% y/y in July.
The combination of household disposable income growth and historically low nomi-nal interest rates (the prime overdraft rate has remained steady at 9% since No-vember 2010) has contributed to the slight improvement in the ratio of household debt to disposable income, to 75.9% in Q2:11, from 76.8% in Q1:11. However, households continue to carry a sizeable debt burden, with the household debt to income ratio in Q2:11 not significantly different from its 2008 peak of 82%.
Building activity remains subdued, with house price growth likely to follow suit.

The value of residential buildings completed (in real terms) for the period January to July 2011 fell by 7.4%, from the corresponding period in 2010. Residential con-tractors, as surveyed by the Bureau of Economic Research, suffered a fall in busi-ness confidence, to 20 index points in Q3:11, from 24 index points in Q2:11. Sur-vey respondents cited deteriorating business conditions, slower building activity, less demand for new building work and negative profitability as the culprits for this slide in confidence.
The South African economy’s growth momentum has slowed. Standard Bank believes that this trend will persist through H2:11, and has revised its estimates for GDP growth to 3.3% y/y (previously 3.8% y/y) for 2011 and 3.1% y/y (previously 3.4% y/y) for 2012.
The SARB has made similar downward revisions to their GDP growth forecast. In addition, the SARB has stated that the risks to the inflation outlook were “delicately balanced”, with exogenous factors seen as the primary drivers of inflation. The SARB has also stated that there was no evidence yet of second-round effects stemming from im-ported inflation. However, inflation is expected to marginally breach the upper end of the target range in Q4:11 and peak in Q1:12 before returning to within the target range in Q2:12.
An increasingly poor domestic economic growth outlook, coupled with the sharp fall in consumer confidence and an anticipated rise in inflation, paints an uninspiring outlook for consumer spending in H2:11. With household debt still high, and fuel, electricity and food costs on the rise, consumers face testing times. We forecast Standard Bank’s median house price growth to tread water in low single digits, in nominal terms, into 2012.

*Sibusiso Gumbi is from Standard Bank.

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Denny Crane

Denny Crane
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