FNB house price index growth contracts

The First National bank (FNB) residential property index printed a twelve-month average contraction of 2.8% at the end of June 2022 compared to a growth of 4.7% at the end of the prior quarter and 9.6% over the corresponding period of 2021. This sudden deceleration follows the onset of interest rate hikes in 2022, where Bank of Namibia has raised rates by cumulative 175 basis points over a period of seven months. This further confirms our assumption that record low interest rates instituted in 2020 were supporting house price growth.

While supply-side challenges have been at the core of the housing market dynamics, waning demand on the back of deteriorating macroeconomic environment is seemingly taking a toll on the market. This is justified by lower-than expected sales of houses within the small housing segment – an unusual development by historic standard. In effect, sales volumes within the small housing segment posted a contraction of 0.8% year-on-year in the second quarter of 2022, from a growth of 7.3% year-on-year recorded in the same period of 2021. Nonetheless, overall national house price has remained fairly stable, with the twelve-month national weighted average house price recorded at N$1 173 059 in June 2022, compared to N$1 211 382 in June 2021. The contraction in house prices was observed across all regions, with the deepest contraction of 20.8% year-on-year recorded for the coastal region to N$1 253 000 followed by the southern region with -7.9% year-on-year to N$761 000, the central region with -4.0% year-on-year to N$1 564 000 and the northern region with the least contraction of 2.7% year-on-year to N$852 000 at the end of June 2022.

Beneath the surface of current conditions within the housing market is a growing concern about affordability and what constitutes housing affordability for both end-users and financiers across various price points. Admittedly, there appears to be no clear boundaries between the segments of the housing market above and beyond the house price categories from a market perspective. This could be ascribed to lack of up-to-date data on household income.

Periodic access to real time data on household income would be a critical indicator for residential market development and affordability particularly in the post-Covid-19 economic context. Independent segmentation of housing market by developers is often marred by thoughtful marketing move that allows to influence the demand for apartments and their price. Thus, the higher the category of apartments, the greater the benefit of the developer. This approach continues to derail optimal delivery of affordable housing in our view. This calls for a more unified segmentation approach, while also ensuring that there is a periodic access to real time data on household income to guide targeted market interventions.

Rising inflation combined with rising interest rates continue to put pressure on consumers, particularly as job opportunities remain limited and wage growth stagnates. The housing market has not been shielded by this as evidenced by the contraction in prices since November 2021. The housing market is one of the most important sectors of the market economy being at an intersection point of interests for a wide range of economic players, such as investors (both individuals and legal entities), developers, realtors, insurers, bankers, lawyers, etc. The slowdown in sales activity particularly within the small housing segment, which has historically dominated the market presents a huge risk for the development of the housing market and economic recovery in general.