“The solid performance of the housing market continues with a good balance between demand and supply, but this pace of growth appears to have been slowing down in recent months,” FNB said.
“The term ‘slowing pace of improvement’ should not be confused with a ‘deteriorating market’ – it is not yet the latter.”
(READ MORE: S.Africa's average house price up 8% in April)
According to the FNB House Price Index, the average house price for August 2014 rose 5.4 per cent year-on-year.
“This is slower than the previous month’s revised 6.4 per cent, and represents the 7th consecutive month of gradually slowing since the 8.6per cent year-on-year inflation rate recorded in January 2014,” said the bank.
“Real house price growth came in at a very slightly positive 0.06 per cent year-on-year in July. This represents a slight slowing from a revised 0.51 per cent real price growth rate in June, with CPI inflation recording 6.3 per cent in July.”
FNB also stated that its valuers have experienced a slower pace of market improvement since early 2014.
“The FNB Valuers’ Market Strength Index, an index of FNB Valuers’ perceptions of the market, has seen its year-on-year growth slowing since early in 2014, in line with the slowing direction in year-on-year house price growth,” it said.
Taking into account recent events, the South African bank believes that this may be reflective of two factors.
“Firstly, South Africa had an anaemic economy in the first half of 2014, with year-on-year real GDP growth rates of 1.6 per cent and one per cent for the first and second quarters respectively. This, in turn, has exerted downward pressure on employment and Wage Bill growth for the economy,” said FNB.
“Secondly, we have had 75 basis points’ worth of interest rate hikes since the beginning of 2014 by the SARB. While not yet having caused a weakening in the residential market, it is plausible that these factors may have begun to cause residential affordability to deteriorate mildly.”
(READ MORE: Slight rise in S.Africa house prices)
FNB added that it expects only a marginal further slowing down in house price growth going forward.
“The noticeably slower house price inflation rate places some downside risk to our 2014 annual average house price forecast of 7.3 per cent. However, we would not expect a major house price inflation slowdown from here onward under our ‘base case’ economic forecast scenario,” it said.
“The key risks to the housing market outlook would be further stagnation in the economy with labour relations matters remaining highly disruptive, or alternatively further significant rand weakening leading to higher than expected inflation and more severe interest rate hiking than forecast.”