BUSINESS: Bad news for house prices

Homeowners should not be too hasty to sell just yet. Seven months into 2017‚ it was becoming increasingly likely that this year would be the second consecutive year of real house price correction‚ said property expert John Loos‚ in his release of FNB’s property barometer.

“In July 2017‚ the FNB House Price Index showed a slowdown in year-on-year growth‚ having reverted to slowing down after an early promise at the beginning of the year of some mild strengthening‚” said Loos.

“This return to slowing price growth appears very much in line with certain leading economic indicators‚ which also showed some mild promise early in the year only to disappoint from around the second quarter of 2017.

“Key to whether the housing market can strengthen any time soon will be how far interest rate cuts goes this time around‚” he said.

Certain leading indicators also pointed to a near-term return to weakening in sentiment and economic performance after an initial promise of strengthening early in the year‚ said Loos. These economic indicators included a weakening in the Reserve Bank’s leading business indicator in the most recent three months’ worth of data‚ and a significant dip in both business and consumer confidence after slight improvements in the first quarter.

“The price correction is essential since we’ve 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‚” said Loos.

“One possible stimulus was the Reserve Bank’s interest rate cut in July. But 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 possible that house price growth in 2018 could be mildly stronger than 2017‚” he said.