Key themes:
House price growth slows in August
The FNB House Price Index growth slowed to 0.8% y/y in August, down from 1.2% in July (revised from 1.1%) (Figure 1). Our internally developed market strength index, derived from our property valuers' database, continues to show declining levels of demand, while the supply of properties for sale was relatively stable in August (Figure 2). As shown previously, mortgage volumes are now tracking lower than pre-pandemic levels. Feedback from our latest Estate Agents survey suggests that two-thirds (67%) of listed properties now take three months or more to sell, up from 56% in 2Q23 (Figure 3). Nevertheless, 50% of interviewed agents expect activity to pick up in the next three months, especially in the affordable market, largely due to seasonal factors.
More positively, recent macroeconomic data shows a level of resilience in domestic economic activity, despite structural constraints, including acute electricity shortages and railway network inefficiencies. Similarly, the labour market continues to surprise to the upside, with formal employment now back at pre-pandemic levels. Nevertheless, available data suggests that wage growth is unable to keep up with the elevated living costs: compensation of employees increased by 5% y/y in 2Q23, below the 6.2% inflation in the same period. However, surveyed wage expectations signal that wage growth could accelerate slightly above inflation next year, which could provide some relief for consumers.
ADDENDUM - NOTES:
Note on The FNB House Price Index:
The FNB Repeat Sales House Price Index has been one of our repertoire of national house price indices for some years, and is based on the well-known Case-Shiller methodology which is used to compile the Standard & Poor's Case-Shiller Home Price Indices in the United States.
This "repeat sales approach" is based on measuring the rate of change in the prices of individual houses between 2 points in time, based on when the individual homes are transacted. This means that each house price in any month's sample is compared with its own previous transaction value. The various price inflation rates of individual homes are then utilized to compile the average price inflation rate of the index over time.
The index is compiled from FNB's own valuations database, thus based on the residential properties financed by FNB.
We apply certain "filters" and cut-offs to eliminate "outliers" in the data. They main ones are as follows:
Note on the FNB Valuers' Market Strength Index:
When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple "good (100)", "average (50)", and "weak (0)". From all of these ratings we compile an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to 100. After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating from the demand rating, add 100 to the difference, and divide by 2, so that the FNB Valuers' Residential Market Strength Index is also depicted on a scale of 0 to 100 with 50 being the point where supply and demand are equal.
