FNB property Barometer Property Weekly

Are high and forever-rising residential property prices really a good thing? Many seem to think so, but perhaps not if one considers the broader economic benefits of affordable property.

For Those of us that produce the country’s various house price indices, the general feeling one gets is that
the property industry, investment professionals, and indeed much of the public, see it as a good thing when
a house price index shows “strong growth” (whatever that may mean), whereas an “air of gloom” can be felt
when we enter a period of low house price inflation or even deflation.
Understandably, lending institutions, and mortgage borrowers alike, don’t really want to see home values
decline in nominal terms, because it is that value which determines the ease at which a financially pressured home owner can “trade out” of their property and settle the entire debt. The nominal home value provides security.
So, the best form of “downward” price correction, from a systemic risk point of view, if the economic
fundamentals require it, is one that happens gradually in “REAL” terms, i.e. one still gets nominal house
price increase, but at a rate below that of general inflation in the economy (general inflation normally
measured by the Consumer Price Index or CPI).
But, while “sudden” downward house price movements are, we believe, undesirable, that doesn’t mean that
“low” house real price levels are a bad thing.
Currently, real house price levels remain not far off the all time recorded high achieved back at the end of
2007, at levels that still dwarf anything seen in the few decades prior to the start of the new millennium. They were driven to these high levels by the largest residential boom on record, and although the home
buying frenzy of the pre-2008 boom has long since abated, real house prices never corrected very far.
Massive global and local monetary and fiscal policy stimulus largely saw to this.
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