The FNB House Price Index’s year-on-year decline continued to diminish at a steady pace and it looks likely that year-on-year price increase will resume in the next few months.

The deflation rate for September was -4.4 percent year-on-year, significantly less than a revised August rate of -6.5 percent. At this rate, year-on-year deflation will probably be a thing of the past before year-end.

Rate cuts being felt

This diminishing price deflation trend is a strong sign that the positive impact of 500 basis points’ worth of interest rate cuts since December 2008 is starting to be felt in terms of residential market performance.

It is becoming clearer that the recent months’ diminishing price deflation is indeed the start of a trend back towards price inflation, following on an improving trend in demand and transaction volumes, which started earlier in 2009.

No real help from the economy

The improvement in the market to date has been very much due to interest rate cuts, which have improved the household sector’s ability to service debt. However, there has been no real help from the economy, which remained in recession until very recently, exerting huge pressure on household disposable incomes.

The improvement in the market has not only been seen in volume of transactions and diminishing price deflation, but also in an improvement in credit quality. FNB has seen home loan arrears numbers improving, while second quarter insolvencies were down by -40 percent year-on-year.

Price decline of 5.9 percent from peak

The FNB Price Index has July 2000 as its base month (i.e. July 2000 = 100). The latest index value was 275.6, implying an average value 175.6 percent higher than the price average measured in July 2000 when the time series started. However, from the peak in the index reached in February 2008, a cumulative price decline of -5.9 percent has been recorded to date.

Data compiled by Ewald Kellerman and John Loos: FNB Home Loans Property Analytics

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