PROPERTY BAROMETER AREA VALUE BANDS

In the 6 major metro regions, the Upper Income Areas appear to be showing the
most noticeable slowing in house price growth, although the slowing comes off a
high base.
17 August 2015
UPPER INCOME AREA SEGMENT SHOWS THE
MOST NOTICEABLE SLOWING IN HOUSE
PRICE INFLATION
We have been pointing to broadly slower average
house price growth in the FNB National House Price
Index since a high reached around early-2014. This,
we believe, had to come, given a multi-year
deterioration in economic performance from 2012
onward, as temporary (and unsustainable) monetary
and fiscal stimulus measures wear off and a myriad of
structural constraints remain unaddressed.
The deteriorating economic performance brings about
a Household Sector which is more financially
constrained and noticeably less confident, if the
dramatic recent drop in the FNB-BER Consumer
Confidence Index is anything to go by. The natural
result should a more conservative buying pattern when
it comes to residential property, and this should have
more of a dampening impact on the more luxurious end
of the residential market.

2015, although the Upper Income Area price inflation

was still estimated to be on the high side of the 4 value
bands spectrum, it had slowed the most noticeably of
the four, and had moved to slightly below the 8.6%
recorded for the Middle Income Segment.
By comparison, the Lower Middle Income Area
Segment inflated by 5.9% year-on-year, and the Low
Income Area Segment by 6.4%, but we suspect that
their price inflation rates may not remain below those
of the Middle and Upper Income Area segments for too
much longer.
House Price Growth By Area Price Category
- Year-on-Year % Change
10.2%

10%
8.4%

0%
Q1-2008

Q1-2010

Q1-2012

Q1-2014

-10%

Indeed, we have already seen this to be the case in

recent FNB Estate Agent Surveys where the High Net
Worth Area Segment has shown a noticeable recent
softening in reported activity levels, and we have
started to see such softening in average house price
growth on the high end of the market too.
Using Deeds data transactions by individuals, we
compile our 4 FNB House Price Indices by Major
Metro Area Value Band, namely Upper Income Areas
(Average house price = R2.675m), Middle Income
Areas (Average Price=R1.443m), Lower Middle
Income Areas (Average Price = R878,835) and Low
Income Areas (Average Price = R464,950).
On a year-on-year basis, we see that the Upper Income
Area Segments average house price growth has
slowed from 10.2% back in the 3rd quarter of 2014 to
8.4% by the 2nd quarter of 2015. Through 2013 to
early-2015, this segment had the highest price growth
of all 4 segments, as the high end played catch up to
the lower priced segments. But in the 2nd quarter of

Upper Income Metro Suburbs - Year-on-year percentage change

Middle income areas - Year-on-year percentage change
Lower-Middle Income Areas - Year-on-year percentage change
Low Income Areas - Year-on-year percentage change

On a quarter-on-quarter basis, a better indicator of

very recent growth momentum, the price growth
slowing of the Upper Income areas has been just as
noticeable, from 2.7% in the 3rd quarter of 2014 to
1.6% in the 2nd quarter of 2015.

4%

Quarter-on-Quarter House Price Inflation

By Area Price Category
2.7%

2%

0%
Q1-2008

1.6%

Q1-2010

Q1-2012

Q1-2014

-2%

-4%

Upper Income Metro Suburbs - Quarter-on-quarter percentage change

Middle income areas - Quarter-on-quarter percentage change
Lower-Middle Income Areas - Quarter-on-quarter percentage change
Low Income Areas - Quarter-on-quarter percentage change

By comparison, the other 3 segments broad house

price growth slowdowns appeared to have stalled in
the 2nd quarter, the Lower Income and Lower Middle
Income quarter on quarter growth moving more or less
sideways, while the Middle Income Segments
accelerated slightly.

Simultaneously, the rising trend in the percentage of

sellers selling in order to downscale due to life stage
continues. This appears to be the biggest reason for
selling property, and has reached an estimated 30% of
total sellers by the 2nd quarter of 2015, according to the
FNB Estate Agent Survey.

We expect that this stalling will be short lived, and

that some of the lower end segments will see slowing
price growth too. However, such slowing is expected to
be less significant than the Upper Income end, and we
anticipate the Upper Income Metro Suburbs soon to
underperform the more affordable areas.

This, too, works relatively speaking against the highly

priced end of the market and in favour of more
affordable property areas.

Toughening economic times and rising interest rates

have co-incided with the FNB Estate Agent Survey
pointing to a noticeable decline in the percentage of
sellers selling in order to upgrade. This decline works,
relatively speaking, against the higher end, with a
smaller portion of households upgrading into those
more illustrious areas.
25%

Selling in Order to Upgrade

20%

% of Total Sales

20%
15%

13%

10%
5%
0%
Q1-2008

Q1-2010

Q1-2012

Percentage of sellers selling in order to upgrade

Q1-2014

35%
30%

30%

25%
% of Total Sales

The noticeable slowing in average house price inflation

in the Upper Income Areas Segment appears to be
explained in certain of our other indicators, as more
households shift towards a more conservative financial
approach.

Selling in Order to Downscale with Life

Stage

20%
15%
10%
5%
0%
Q1-2008 Q1-2009 Q1-2010 Q1-2011 Q1-2012 Q1-2013 Q1-2014 Q1-2015
Percentage of sellers selling in order to downscale with life stage

Smoothed

In short, therefore, tougher economic times, rising

interest rates, and weaker household confidence are
expected to lead to a more conservative financial
approach by the Household Sector. This is expected to
lead to slower house price inflation in general. But
when we examine the relative performances of areas
according to value band, we would expect the more
affordable end of the residential market to begin to
outperform the higher priced end.
The FNB House Price Indices by Area Value Band
suggest that this relative shift in performances may be
starting to happen, with the Upper Income Area
Segment showing the most noticeable house price
inflation slowing of late.

Smoothed

JOHN LOOS:
HOUSEHOLD AND PROPERTY SECTOR STRATEGIST
MARKET ANALYTICS AND SCENARIO FORECASTING UNIT: FNB HOME LOANS
Tel: 087-328 0151
John.loos@fnb.co.za
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