Mild Slowing in House Price Growth Seen Later in 2014: John Loos – FNB Home Loans

MoneyWeb radio host, Hilton Tarrant, interviews John Loos, FNB’s Home Loan Property Sector Strategist, who suggests you might do well to wait a few months before buying a home.
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Published: Tuesday, April 1st 2014
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HILTON TARRANT: The March house price index from FNB shows an unchanged figure from February – 8.6% growth year on year in March. That’s the same number as February. John Loos is household and property sector strategist at FNB Home Loans. John, if we look at that 8.6% figure, and take inflation off that, you are still getting some pretty decent real growth. JOHN LOOS: Ja, Hilton, some people might not be wildly excited about what is still single-digit price growth, but when you are getting real growth it suggests that there’s a very good balance between supply and demand. That, a year or two ago, was not the case. So it's a very well-balanced market. Our FNB valuers with their market strength index are rating demand just about the same as supply – not quite there yet. But yes, all in all very healthy. HILTON TARRANT: John, if we look across the rest of this year, given that we are in a rate-hiking cycle, with the governor of the Reserve Bank, Gill Marcus, this week driving that point home – that although we didn’t see an interest-rate increase at this MPC meeting we are in all likelihood going to see one at the next – what are your expectations for house-price growth this year, given the interest-rate environment? JOHN LOOS: Well, I must certainly say that these recent months’ numbers have sort of continued to surprise me a little bit on the upside. I would have expected some moderation in price growth by now, and that’s not based on the interest-rate hike that’s already happened. Before that, in the fourth quarter, we already saw a significant drop in nominal disposable income. The economy has been stagnating for a while now, and I would have expected that to already have played some role. It hasn’t yet. But now we add to that interest-rate hiking, and we do indeed expect some more mild interest-rate hiking bringing that by the end of the year probably nearer to 10%. So the combination of that and an economy that’s struggling at the moment I do believe should lead to some moderation in house price growth. I'm talking by the end of the year maybe back to 5 or 6% or so. Nothing too extremely down, but I can't believe that the weak economy and interest-rate hiking won't have some sort of moderating effect on the housing market. HILTON TARRANT: So perhaps closer to flat in real terms by the end of this year. John, first-time buyers – if a first-time buyer is in a position to buy at this point in time, has done all the sums, has figured out some headroom and factored in some headroom to that calculation, is this a good time to make that decision, to buy? JOHN LOOS: I think if, as we expect, there should be some additional pressure on the market from rate-hiking and a weaker economy, obviously that improves the opportunity to buy, just from real prices. If we do go back to real price decline, in other words, price increase below inflation, gradually it would become a better time to buy. Difficult to tell what is ultimately the best time to buy but, yes, the peaks of interest rate cycles are generally better than the low points in interest-rate cycles, where the market’s relatively strong and it tends to be more of a seller’s market. So getting better, I guess, but just when you are in an interest-rate rising cycle you’ve always got to live well within your means, buy well within your means, and if you want to buy factor in a few percentage points worth of increases, be able to handle that. Then of course also understand your rates bill, your rates and taxes bill and that that’s going up steadily too at the moment. So there are costs involved in housing. • Subscribe to a daily email of transcripts from Moneyweb Radio: