SA's house prices are on the rise

Although Lightstone's National Repeat Sales house price inflation is still slightly negative year on year, it appears that the House Price Index bottomed out at the beginning of 2009 and that house prices are actually now on a modest upward trend.   Monthly house price inflation (which tracks the month on month house price trend) was up 0.24% from March to April.   This continues the positive trend we have been monitoring since January and appears to confirm that recent house price growth has moved out of negative into modest positive territory.  Given the volatility of monthly house price inflation, we have been cautious to confirm this positive trend, but four consecutive months of positive monthly figures gives us the confidence to confirm that house price are on the rise again.   

Projecting forward to July, annual house price inflation is now effectively at 0% which suggests that we have avoided the major house price drops experienced in foreign markets.   Nevertheless while the "normal" market appears to be recovering, there is still evidence of major house price pressure in distressed circumstances.   The average discounts in the case of forced sales have increased from 15-45% at the beginning of the year to 25-50% currently.  

With mortgage lenders having mostly accounted for their bad debt exposure and interest rates falling, there are signals that the appetite for lending is increasing which should stimulate both the "normal" and "distressed" markets.   Hopefully the distressed discounts are also near their maximum. In fact, at the lower end of the market, the discounts are actually now decreasing.   

On a segment level, the Affordable and Mid Value segments are both showing positive annual inflation this month, with the Affordable market reaching highest inflation numbers across all segments at 17%.  Even in the Luxury and High Value segments, which are still negative year on year, the trend is upward.

The detailed performance of the different segments tracked is shown in more detail in the pages that follow.

Annual Inflation Table

COASTAL VS NON-COASTAL INDEX

Coastal v Non-coastal Annual inflation

Coastal Annual v Monthly Inflation

Non-coastal Annual v Monthly Inflation

FREE HOLD VS SECTIONAL TITLE INDEX

Sectional title v Free hold Annual inflation

Sectional tile Annual v Monthly Inflation

Free hold Annual v Monthly Inflation

Note: Monthly house price inflation shows the inflation rate of the most recent month and emphasises recent market performance.  However, monthly inflation tends to be much more volatile than annual inflation trends  and so conclusions about the future trend of annual inflation must be made with caution.

AREA VALUE BAND INDEX

Area Value Band Annual inflation.    

Affordable Market Annual v Monthly inflation  

Mid-value Market Annual v Monthly inflation.   

High-value Market Annual v Monthly inflation.   

Luxury Market Annual v Monthly inflation.   

Note: Monthly house price inflation shows the inflation rate of the most recent month and emphasises recent market performance.  However, monthly inflation tends to be much more volatile than annual inflation trends  and so conclusions about the future trend of annual inflation must be made with caution.

PROVINCIAL INDEX

MUNICIPAL INDEX

Inland Municipalities Annual inflation

Coastal Municipalities Annual inflation

 NOTE ON METHODOLOGY AND DATA

In contrast to 'average house price' indices, repeat sales indices provide a measure of the actual price inflation of houses that have transacted twice within a particular period of time.   The main benefit of this is that it is less influenced by the mix of transacting properties.   The repeat sales methodology is recognised as the premier methodology for indexing house prices and is used by many international residential property price indexers including the Office of Federal Housing Enterprise Oversight (OFHEO) in the United States.

All property transactions in South Africa are registered in the Deeds Office and each record contains the legal details of both the property and the transaction.  For the purposes of the Repeat Sales Index for residential properties, the following transactions have been excluded: farms; any transactions which may be of a development, commercial or community services nature; new developments; sales made in execution of a judgement; non-arms-length transactions; transactions where the inflation is extremely different to the norm of the statistical distribution of inflation rates; and township transactions

* Andrew Watt Director, Lightstone

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responses to this article

Look CJ..... graphs! Hope this clears things up for you buddy! by NRWB on August 19 2009, 14:45 Find this comment inappropriate? Report it

the premier methodology for indexing house prices ! Take Note boys and girls, we are using premier technology here, not back yard chat room, CJ maths and stats... this is the real deal... lol So I see 2004 was the peak, hmm interesting, I never would have guessed... So 5 years down the track are . .more we from the peak in this house price inflation stuff. Good to know. I also like Andrews comment : "The average discounts in the case of forced sales have increased from 15-45% at the beginning of the year to 25-50% currently. " OH....Ok so you CAN buy at a discount, good to know that too... Someone around here mentioned there is no such thing as destressed prices only market prices, we wont mention any names but those fools know who they are.. Do I think we have hit the bottom and the market is on its way back up... lol... HELL NO! Prices will remain about where they are maybe some single digit declines in various local markets. I do however think CPIX will be in high double digits going forward once the going out of business/ liquidation sales are over. . .less by Brennan- I am feeling a bit smug today on August 19 2009, 14:57 Find this comment inappropriate? Report it

So what caused the bubble in 2004? One just needs to look at interest rates which dropped in Sept 2002 from 17% to 11.5% a year later ie Dec 2003. Easy money and every man and his dog jumped in. So now rates are again at a low at 10.5%, throw in some 100% loans from the . .more banksters and we will have another bubble on the horizon, only this time I doubt the banks will be so eager so dont bet on another housing bubble anytime soon. But those looking to buy as newbies, just a tip, once the banks start offering 1st time buyers 100% loans you would have missed the bottom. Thats my yard stick, not fancy graphs and charts. . .less by brennan on August 19 2009, 15:14 Find this comment inappropriate? Report it

I will wait This could just be dead cat bounce. I will wait for the institutions to release their figures as well. by Devil's Advocate on August 19 2009, 15:59 Find this comment inappropriate? Report it

Makes sense to me We had this century's biggest housing bubble ever with prices going up 3 or 4 times more than inflation - no problem - there we go, one year with a tiny blip down of minus 1% - great, that's sorted, imbalances all corrected ... now where were we .. oh . .more yeah, up, up and away ... Believe that, then can I interest you in some yogurt culture that you just grow at home and then sell back to me ... guaranteed way to get rich quick fast. . .less by CJ Says on August 19 2009, 21:04 Find this comment inappropriate? Report it

Without a doubt... Cj will pipe up soon with some stats or graph to contradict this lot. My advice to him, toss your charts in file 13. Lightstone is the business, comparing like with like. These charts look pretty clear to me - the monthly has crosed the yearly (what . .more ever) and for what it's worth we are past the lows. But wait... we have still 30 or 40% to fall. It's a dead cat bounce. A sucker rally. And... and... and... there is even deflation to look forward to. Yippee yay, more fun with D*** and Jane. Yawn...I think not. Property is a very slow ship, and it takes a lot to turn her. Take note, she has turned. . .less by Joker on August 19 2009, 21:44 Find this comment inappropriate? Report it

BULLCRAP! No jobs no money but I buy a house??? Statistics can be manipulated to suit any point of view! This is BS of some magnitude. by DeviLL on August 20 2009, 04:56 Find this comment inappropriate? Report it

SHERRIF"S AUCTION They went up yesterday at the auction at Edenvale sheriff's offices. 3 full pages of 'em. Up went a Bedfordview 3 garage home to 1.8 million wow!! by ER on August 20 2009, 07:00 Find this comment inappropriate? Report it

Classic sucker's rally This is all going EXACTLY to form. Check out any literature on booms and busts and there's ALWAYS a sucker's rally just after the first peak. This is still all going to end in tears. Lightstone's stats are based on real numbers - very little . .more statistical manipulation going on here - so I'm sure real prices are rising. And as history has shown over and over again, it's not a sign of real recovery but rather of real greed and real ignorance. Wake me when it's all over in 2011 or 2012, and then I'll buy my house. Until then, the old adage about fools and their money will play out with much wailing and gnashing of little bull teeth. . .less by Chucky on August 20 2009, 10:50 Find this comment inappropriate? Report it

Chucky I suspect that you are going to miss the boat, Pal. If you think that you will pick up a house for nothing in 3 years time you are the fool, just without the money bit. Crazy how you aim to buy your house then only. Oh, and remember to discount . .more the rent you pay until then. . .less by Pete on August 20 2009, 14:18 Find this comment inappropriate? Report it

And the only believers so far are ... Joker and NRWB. There was an ad for a house in the Argus property supplement yesterday - "great starter home" it said - 2 beds for R3.2 m - starter home my @ss. If starter homes are R3.2m then we still have some serious price falling left to do. by CJ Says on August 20 2009, 14:56 Find this comment inappropriate? Report it

@ Peter, why so cross? Pete, I've been seeing this coming for years - sold my last property at the top of the bubble and have made a tidy fortune playing with my profits since then - so needless to say I've been preaching the property bust for some years now. So far I've been . .more proved right at every step of the way, but you know what, Pete? Whenever I've mentioned the bursting bubble, people like you have gotten ANGRY. Really livid. Like spitting mad. I've slowly realised why: it's just insecurity. Deep down you know that your economic models, if you have any, are flawed. You know that you're invested in a turkey. You know that somebody else read the situation better than you, and you're ticked. I'm not going to fight with you. I'm not going to do a CJ and haul out graphs and logic, because it's a bit like jazz: if you gotta ask, you'll never know. If you're still fighting it, this late in the day, then you're an institutionalized sucker. So long, and thanks for all the laughs. See you in 2012, when I'll be the guy twisting your arm in the forced sale. . .less by Chucky on August 20 2009, 16:16 Find this comment inappropriate? Report it

Small problem with methodology Lightstone appears to employ an approach with lots more integrity than the numbers more generally provided by the banks. In fact, the quality and rigour is apparent and quite refreshing to those of us who are irritated by the slap stick approach so . .more ubiquitously seen in the residential property market. A small problem though.. sales made in execution of a judgement are excluded, which in this market distorts the numbers and overstates on the positive side, since most sellers today are forced to sell in one way or another. During normal economic conditions, excluding these sales may seem clever and indeed makes no difference, since these transactions normally comprise a very small fraction of total transfers. During normal economic times this methodological error would only cause a slight bias to overstate price levels, and will have even less bearing on trend assessments. In times of distress though, sales made in execution of a judgement comprise a very significant body of de facto transactions. It may even dominate actual market price levels, and in particular, of price trends. Excluding these sales therefore may severely distort this indicator in times of distress. . .less by Jack on August 20 2009, 17:45 Find this comment inappropriate? Report it

Can we trust this? ....Are you sure? From the following in the article... ---------------------------------------- The repeat sales methodology is recognised as the premier methodology for indexing house prices and is used by many international residential property price indexers . .more including the Office of Federal Housing Enterprise Oversight (OFHEO) in the United States. ---------------------------------------- My 2c question is...can we trust them? Was the USA not the place where all the trouble started? Why should we believe them now? My second question is... In your model you are comparing the price of the house which was sold now to the price of the house in the previous sale. Assuming that is the case...I believe most people who bought the house have made renovations and especially so in the last few years. By selling the house at a little higher than the purchase price it might show up at the Deeds Office as though they made money out of it but they might be losing quite a lot. How do you account for that in the model? Or do you just ignore it? . .less by Pieter on August 20 2009, 18:58 Find this comment inappropriate? Report it

The integrity of the Absa Index Just as much as the Lightstone team are very clear about their methodology, this cannot be said of some of the banks who also publish house price indices. The Absa residential property index measures price trends in three categories. These . .more categories are defined in terms of both house size and price. Yes, Absa s price index is measured, in part, by a population defined by price itself. The basket on which the Absa indices are based, are defined and delineated by arbitrary house prices levels. The implication is that there may be a systematic and accumulating error built into the methodology of the index itself. I asked the editor to investigate and I wrote to Mr Jacques du Toit, the economist at Absa, for comment, but nothing has been forthcoming. See previous article at: http://www.realestateweb.co.za/realestateweb/view/realestateweb/en/page196?oid=43804&sn=Detail . .less by Jack on August 20 2009, 21:03 Find this comment inappropriate? Report it

where are the golden corridors To all you fine experts ( Not being sarcastic) I have been following your comments both for and against. I have a substantial dep to buy a house, where can i find out more info to buy distressed property? Where are the @ golden corridors on the east rand . .more of Gauteng? . .less by mojo on August 20 2009, 21:33 Find this comment inappropriate? Report it

Good point, Pieter @ Pieter, you've hit the nail on the head re renovations not showing up on indexes. If you buy place for R500k, do R150k of renovations, and then sell the place for R550k, Lightstone is going to register a 10 percent increase, when in reality the seller . .more has lost R100k in the deal. . .less by Bean Counter on August 20 2009, 22:01 Find this comment inappropriate? Report it

'Watt' are you on about Andrew? 'it appears that the House Price Index bottomed out at the beginning of 2009 and that house prices are actually now on a modest upward trend.' I beg your pardon??? Am I to assume that the writer of this piece confuses a deflationary house price . .more blip returning to a modest inflationary uptick in January '09 as an actual uptick in house prices??????? Look at the data and assume real inflation is 10 - 15% (read 20 - 40% at the till) and house prices entered 3% inflation in January '09, how does that equate to a rise in HOUSE PRICES? Please mate... House prices HAVE NOT begun to rise, they merely slowed in their downward trend! Who interpreted these charts???? Unbelievable really! . .less by JWise on August 20 2009, 22:01 Find this comment inappropriate? Report it

A few strange things Why are these charts only going up to April - where is May, June, July ? I see the monthly rate change on a national level blipped up in a classic bear trap and seemed to be flattening and getting ready to turn down again - the latest 3 months . .more are conveniently missing so we can't check this. If forced sales are happening at ever greater discounts, this contradicts their theory that prices have turned. As Jwise correctly points out - on the national graph there is no upward trend - all we have is that March and April are slightly less negative than Jan and Feb. Notice they have a rather naughty trick going on where the monthly change scale on the national graph is totally different to the yearly scale. Makes it look like the monthly figures are surging positively upwards whereas all they are doing is getting slightly less negative. Nice trick to keep the graphs microscopically small so that the detail is pretty hard to see - luckily eagle eyes CJ can see through all the devious property rampers' tricks. . .less by CJ Says on August 21 2009, 00:05 Find this comment inappropriate? Report it

interestingly The first graph looks kind of similar to the Japan residential property annual price change graph in 1993 - what happened next ? Well every year from 1993 to 2009 house prices continued to fall between 0.7% and 6% annually. That's a 17 year crash. by CJ Says on August 21 2009, 00:43 Find this comment inappropriate? Report it

Naughty naughty plotters! The naughty plotters of these charts are OBVIOUSLY in kahoots with the real estate industry and it's just a big conspiracy to get us to by houses at inflated prices. Please chaps, the trend is your friend. It was up, then down, and now APPEARS, if . .more these stats can be believed, to have turned a corner. So what may the next trend be? Some say up, some flat, some believe still down. My guess, honestly, is up. But who really knows. In the mean time this is just information. Use it, don't use it, who cares. It's your call. . .less by Pink Panther returns on August 21 2009, 12:18 Find this comment inappropriate? Report it

Gut feel However, not being a plotter myself and just looking at the broader picture my gut feel is growth this year will just remain flat, probably into next year too, as long as we remain in R mode. Any real growth will come in 2010 at some point. My sense is . .more sentiment in the market has swung. I just got back from 6 weeks in Europe and noticed that so many ads of houses that are still on the market have INCREASED their asking prices. Go figure. . .less by Pink Panther returns on August 21 2009, 12:27 Find this comment inappropriate? Report it

The next interest rate cycle is about to kick off? Am writing this from Brisbane, where latest Aus news concerns how the next interest rate move is up, as the economy recovers, and there is a move to prevent inflation. If SA fails to raise rates, the rand will drop in value. If rates go up, the so-called . .more "recovery" (pant, pant) will be shortlived indeed, even if it exists. If rates go down or stay the same, the rand will lose value. So for bricks and mortar property it's heads you lose, tails you lose, for now. Good luck Brennan... . .less by Amused on August 21 2009, 16:07 Find this comment inappropriate? Report it

Oh dear Pink P -3.1 -2.6 -1.7 -1.7 You call that a positive trend - I call it a temporary slowdown on a negative trend - if we had the missing 3 following months we would have a better idea - but for some reason Lightstone don't want to give us . .more those - wonder why ? . .less by CJ Says on August 21 2009, 23:23 Find this comment inappropriate? Report it

Let's see what the national quarterly trend tells us Last 5 quarters 7.5 4.1 0.8 -1.7 -8 Now call me a stickler for accuracy but in my eyes that shows me that property is on a determined negative trend. No sign of a bottom there. by CJ Says on August 22 2009, 00:31 Find this comment inappropriate? Report it

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