Graphs

Quick links
Real house prices v nominal since 1966
Inflation versus nominal house price growth in South Africa
Inflation history in South Africa since 1958
Prime interest rate history in South Africa
House price and disposable income indices in South Africa
Debt to disposable income in South Africa
South African house prices v demographic trend
Migration rate for South Africa compared to UK, US, Australia
The shape of a typical property bubble
South African real house prices compared to a typical property bubble
New house prices compared to old house prices
House prices in gold terms

South African REAL house prices

For the first time since May 2010, Real House Prices seem to have stabilised in South Africa. They have grown now in real terms for April, May and June month-on month and the sudden downward decline seems to have stabilised. But is this a stabilisation or simply a malaise?

.
TOTAL South African population v South African house prices

The future for the South African population is one of low growth. The population is currently at the top of the S-shaped curve. This could have a large knock on effect on the property market, leaving the property market exposed to weakened demand. Full article

South African annual house prices v annual house price growth 1966 to current

South Africa has a consistent history of double digit annual nominal house price growths. However, these growths tracked behind inflation from 1985 to 2003 when the housing boom was in full swing. Since 1966, South Africa has only had 3 years of negative nominal house price growth.
1985: -7.69%
1986: -3.97%
2009: -0.32%

1980 Boom and Bust cycle compared to 2004 Boom and Bust cycle

There is a strong similarity between the property cycle seen in 1980 and that seen again in 2004. Full article

Forecast South African house prices to 2020

House Price South Africa predicts price growth of the average house in South Africa to be 5% to 2015 and 4% thereafter to 2020. Full article

.
Real house prices in South Africa (at constant 2008 prices) compared to nominal house prices

Full article

Real house price growths in South Africa compared to nominal house price growths

Full article

Monthly house prices since 1966, showing the overheating that happened in the first 6 months of 2010

Full article

.
Inflation versus nominal house price growth in South Africa

Full article
.
Inflation history in South Africa since 1958

.
Prime interest rate history in South Africa 1948 to current

.
House price and disposable income indices in South Africa

House prices have grown faster than disposable income since 2000. Although the difference indexed 62% greater in 2007, house prices grew by an even greater amount compared to disposable income in the 80′s, indexing 201% greater in March 1984.

.
Debt to disposable income in South Africa

Source: SARB

.
Net migration rate for South Africa compared to UK, US, Australia 1950 to 2050

A positive rate (ie greater than zero) indicates the number of people per 1000 population ARRIVING in South Africa. Negative figures indicate people LEAVING South Africa.

Full article

.
The shape of a typical property bubble

Source: Jean-Paul Rodrigue
Full article

.
South African real house prices compared to a typical property bubble

The recent South African real price trend appears to mimic the “typical” house bubble shape.
Full article

.
New house prices v old house prices

Recently the gap between new house prices and old house prices seems to be closing. The gap is closing due to the average price of new houses decreasing and the average price of old houses increasing.

.
South African house prices expressed in gold terms

House prices are now cheaper in gold terms than the long term average. The pattern appears to following what was seen in the mid-eighties.

25 Responses to Graphs

  1. Goldilocks says:

    Wheres the house price graph in gold terms from 1966?

  2. CJ says:

    This is an impressive sat of graphs – well done – at the end of August 2011, here are my thoughts on them -

    The top real price graph shows houses are double what they should be compared to salaries (i.e. in real terms ) – it clearly shows they need to half in price in real terms.

    Graph 6 shows the real price over 45 years and this confirms that house prices are way too over priced according to long term norms.

    Graph 10 shows that interest rates have never been this low since 1980.

    Graph 13 shows that despite low interest rates, debt to household income has never been so high – in fact it is double what it was back in 1980 when interest rates where also at this level – so debt levels need to fall – I would suggest that for this to happen, house prices need to fall also.

    Graph 12 is interesting and confirms that house prices are way ahead of disposable income. If we assume that the disposable income graph continues on it’s pretty smooth trend, then nominal house prices will need to fall 21% to rejoin it,which is where it traditionally likes to be.

    Graph 15 compares SA real prices to the classic bubble graph and shows that the “fear” plunge stage is imminent.

    Graph 16 shows that new house prices and old house prices are traditionally the same, but presently new homes are actually 50% higher than old houses – this suggests that new home prices need to plummet to get back to norms.

    Finally, the bottom graph is kind of interesting – house prices in gold ounces. If we update it to the present August price of gold, it shows that when priced in gold, house prices are at an all time LOW !!!! They have only been this low one other year in the last 30 years, and that was in 1980.

    As we have seen in the other charts, house prices need to fall, so I would suggest that perhaps this is telling us that gold has peaked. If it hasn’t, then house prices in gold terms are going to go into record low territory where they have never ventured ever before.

    If we say that nominal house prices in rands will fall 21% over the next year, and the gold house price returns to the norm of 130 ounces like it did after 1980, then gold will return back to $800. That looks like it could be a fit to me. If the Rand weakens then the gold price will be lower, if the rand strengthens then the gold price will be higher.

    So there we have it – I would say therefore in conclusion, over the next 3 or so years we could see real house price falls of 50%, nominal house price falls of 21% with new homes falling by 40% which probably means land will fall in price to facilitate this, inflation climbing up to 10%, interest rates getting higher, and gold halving.

    Finally – A few more graphs that might be interesting to see are – SA real and nominal house prices priced in US dollars and UK pounds. That would bring the exchange rate into the equation which might reveal something of interest. You could even take it further and graph average house prices in UK, US and SA in 3 graphs – one pricing them in rand, one pricing them in dollars and one pricing them in pounds. It could reveal something of interest and shouldn’t be too hard to do.

    Great work by the way – I wish the mainstream media would get off their lazy fat arses and publish stuff like this.

  3. Rudy says:

    Excellent stuff. This is an amazing effort.

    CJ above is right, the MSM would never tell the truth, like your graphs do. They are too busy printing estate agencies advertorials.

  4. CJ says:

    I forgot to mention Graph 7 – this shows real house price growth and nominal house price growth on the same graph. If we assume that real prices should follow inflation, but that there are cycles around this norm, then the real price area above the zero line should be pretty much the same as the area below the zero line. Notice from 1997 to 2007, there is a huge area ABOVE the zero line – then a relatively small area from 2008 to 2010 below the line – this area is nowhere near large enough to match the huge area above that preceded it … we need much more. So that line has to nose dive down again.

    And when it does, notice how the nominal line always tracks it … so that gives us another clue that nominal prices are going to fall.

  5. gerrit says:

    Great stats, keep it up.

    I have been involved in residential building over the last 16 years. I have witness a huge increase in real building costs, land cost and land developement costs(civils).

    Price levels are determined by supply and demand, but only after cost of manufacturing(the cost to build a house, cost of raw land and civils) is reflected in the supply curve. I suspect our supply curve have shifted permanently.

    I6 years ago it cost me R850 per square meter to build my house. 3 years ago I constructed 5 townhouses @ R 4000 per square meter(same finishes). Taking CPI into consideration, this cost should have been under R3000. The reasons for this sharp increase is debatable, but I expect it’s a result of labour law changes and increased costs to “mine” recources used in manufacturing cement, lime, clay, etc. Recources are mined first where it is the cheapest to do, but once all have been removed from mother earth, you consequently have to move on to sites where it becomes more and more expensive to mine.

    Land prices has also increased to rediculous levels. The plot of my house cost me R87k in 1995 and will have sold for R2 mill now, only 16 years later. The reason for this dramatic increase? Dept of Agriculture are reluctant to let farmland be resoned for urban developement. Secondly, farmland has been over priced for many years now, for farmers it’s a way of living, not only return on equity, Thirdly, municipalities do not have the money to supply infrastructure for proposed new developement(ex sewerage) , expecting developers to contribute to this.

    This fundemental changes will unfortunately prevent houseprices from simply just coming down because a set of graphs strongly suggest it should. I am not going to sell my house for less than what it’s going to cost me to replace it, buying a plot and building a house(all other variables constant)

    How about suppying us a graph compairing house prices(old and new seperate) with construction inflation and new plot/erven infation???

    Compared to first world countries , SA house prices have been very low in the past a decade or 2 ago(measured to disposable income per capita as an example). Our friends living overseas and are doing the same job as us, is living in much smaller houses. Maybe we just had cheap land, cheape labour and cheap resources to mine in the past.

    • CJ Says says:

      Interesting points Gerrit – good to see some hard data on building costs.

      Seems to me that your land has gone up 8 times higher than the inflation rate – by my calculations, inflation over that period has increased prices by 160% which means your plot should be R225,000 instead of 2 million.

      Plenty of fat there to accommodate a house price crash – if the land went back to this point then that is R1.775m that can be clawed back. New house prices need to drop 40% – a collapse in land prices would certainly do that. I suspect that is what will happen.

      Often houses will sell for prices that are less than their replacement value. It is all part of the housing cycle.

      You don’t feel inclined to sell your house at a loss now because you are not motivated. Interest rates are at a 30 year low and people still think prices won’t drop. Let’s say however that you had a 100% bond on the property and I could tell the future and informed you that the bond rate was doubling next month and that in 3 years time your house would be worth 40% less. Suddenly your motivation increases and it would make sense to sell at a loss now and then perhaps buy the same place back again in 3 years time for an even cheaper price than you sold it at. The first ones to sell benefit – delay and you are the one suffering the asset price drop and the increased monthly costs on the bond.

      Artificially low bond rates are presently helping sellers resist lowering their prices. They can take the present levels of pain. With prices remaining high, most potential buyers are therefore simply refusing to buy. You can see on the graphs that South Africans are already at record debt levels. Only when governments stop messing around with keeping bond rates artificially low will the real pressure to sell start. Until then the market will just stagnate in the doldrums.

      That graph needs to return to where it wants to be. There are always reasons in a bubble for why it is “different this time”. That is a standard part of the cycle. Of course, in time, people discover that things weren’t so different after all and the historical norms have once again returned.

      When I see properties advertised in the Press at prices that are equivalent to 2 million UK pounds or 3 million dollars, I think they look extremely over priced to what you can get overseas.

      Go though the property page, divide the house prices you see advertised by half, suddenly they seem about right. That’s because they ARE presently double the price (compared to rents and salaries) that they were one or two decades ago.

      House prices in the US are starting to look cheap. They have had a good crash. It is as cheap to buy than rent in many places. Prices will probably drop even further but the signs are there that things are looking better. In SA we are nowhere near there. Rents are still presently less than half of the monthly buying costs.

      Why buy something that is falling in price when you can rent it for a third of the price ?

  6. Nikki says:

    A BRILLIANT article explaining how one gauges the true value of property. The ratio is 2:2 and it never changes, even through history….:

    The magical 2.2 housing ratio between median nationwide home prices and household income

    http://www.mybudget360.com/the-magical-2-housing-ratio-between-median-nationwide-home-prices-and-household-income/

  7. Good point made in the article about the effect of the two-income family perhaps masking the house price rises as the ratio of house prices to household income was kept down at 2.2 for longer. Any benefits from hosue price rises have been eroded by the stress now on working families to pay for it.

    The only winners from the boom (of which there are many by the way) were those who already had a house by 2000, or managed to buy more than one – and exit by 2004/5.

    Those who bought at the top are sitting on a time bomb. When interest rates rise (on the back of sovereign debts) then the true stress for all of these home owners will occur.

  8. Doc says:

    Thank you for a great site.

    I am currently looking to buy at the moment (for lifestyle reasons rather than investment) but am obviously concerned that the property market is over-valued. I have looked at one particular house on the market for about R1,7 Mil, but the same house is advertised to rent at R9 500pm rates included. Is this an exception, or is it generally much cheaper to rent at the moment?

    A friend mentioned that multiplying the rental obtainable by a factor of between 100 and 160 gives a ball park of where the house price should be? Is there any truth in this?

  9. It is generally much cheaper to rent than to buy. As you can see from the pricing graph on the front page, nominal house prices have not actually dropped at all yet – even this year they are growing (if only at 1.94%). Low interest rates and building costs are keeping the prices up, therefore it makes sense that the house you are thinking of purchasing is much more expensive to buy than to rent.

    In terms of pricing it depends on a number of factors including interest rates and confidence. Generally people say that a good investment will yield a monthly rent that is about 1% of the total value of the property. But these returns have not been seen for a long time given the fact that rents did not keep pace with prices.

  10. Terry says:

    Very interesting points . This is the best blog by far when it comes to real estate info. So what is the golden, no more than a 3rd of your income on rent or mortgage?

  11. Doug says:

    I would love to see a graph of nominal house price growth V real house price growth on a log scale (A scale of percentage price increase over time)

    We could then compare the rate of growth in house prices from 1979-1984 and its subsequent decline 1984-1986 to current market conditions. It would appear that in the eighties the market prices returned to the average annual growth rate of previous years. Suggesting, that current SA house prices could still fall 30-40%

    Note: Something I have not seen mentioned on this blog but worthy of note. Back in the eighties there was a flood of Rhodesians escaping the political Regime of one Robert Mugabe. Several hundred thousand, if memory serves, all with their life savings in tow looking for houses to buy

    This contributed massively to the then price increases (not just the gold price). The point is we can never know for sure what the drivers of market declines or rises are going to be, we can only speculate.

    Personally, three things stand out for me. Phase II of worldwide economic collapse is still to come. Inflation will get worse in SA and interest rates will rise. Sellers forced to sell at lower prices never get their head round this price drop in a hurry so it will take time.

  12. Willie says:

    O well. All these theories and graphs. Seems I bought my house in the “bull trap” at the top (Sep 2009) . House prices increased since then by about 8% year on year since Apr 2011 to Apr 2012. It seems that we are approaching the “return to normal” point at the top now. Should I sell my house now while I can still make a small profit? What should I do?

    • chris says:

      I wouldnt stress too much. The Rode report, and this site, have both predicted that house prices will gradually increase nominally without beating inflation for probably about 5 years. I personally dont think there is any rush to get in or out, but personally as a waiting first time buyer I will wait for property growth to beat inflation, as I would rather pay a landlord than a thieving bank,

  13. SJ says:

    I read Rodrigue’s bubble theory and then right at the end he advises people to buy properties as an investor and not as a speculator.
    I quote
    “When the real estate market starts to be distressed (I wish I knew when), wait 6 months to a year to see it become very distressed, if not in a panic mode. Once deflation is firmly established, come in guns blazing with cash and ruthlessly negotiate a lower price by praying on a desperate speculator or a foreclosure; take your time, you will have a lot of choices. Secure, if you have to, a 30 year mortgage even if interest rates are higher (7 to 9% range in all likelihood), and see the Fed in the following years initiate a wave of hyperinflation by printing money like there is no tomorrow. Have the pleasure to pay back your fixed mortgage in depreciating dollars and see the value of your housing asset follow whatever level of (hyper)inflation.”

  14. Pingback: How has South African property value performed over the last few years? | Property Home

  15. antgweb says:

    Thanks Goldilocks. Very informative, especially the typical property bubble vs real house prices. I have two questions:
    1. Why did you use CPI rather than GDP deflator as a measure of inflation?
    2. Do you know where more detailed data on varying spatial scales on housing prices is available?

  16. Hen says:

    Some interesting charts here; SA bubble is the biggest of all… scary
    http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

  17. gerrit says:

    Hi
    Great charts, but when are you upgrading to include last 12 to18 months info?

  18. Ulrich says:

    Does anyone know where I can find SA house prices prior to 1966? Anything will do, even yearly handwritten prices going back further than 1966.

  19. Kevs says:

    Very infomative – Thank You.

    I am not an expert on property or the markets. I would like to know what the change in the political system in SA had to play int these price changes. For it seems that these upward trend just happened around change of government. Can I make the conclusion that the prices was artificially insiminated ? I see according to these graphs there is a pattern. I have heard someone suggest that 14 years is good ave for these changes. Could that be reliable, or myth.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s