Understanding Property Indices and House Price Inflation

Whether you are a homeowner, prospective seller, buyer or investor, the state of the property market will be of interest to you as it provides information on how your investment or potential purchase, or sale may be affected or performing.

Much is written about the property market on a daily basis, drawing information from numerous House Price Indicators and Property Barometers. It is useful to know that these often report differing statistics on various aspects of the market and generally reflect the experiences of the particular institution.

The indices aim to provide insight on which way the market might be leaning, providing information about market confidence, demand, stock levels, price movement, how long it takes to sell and the percentage difference between asking and selling prices.

They tell us whether the market is in equilibrium and well-balanced for both sellers and buyers or whether it favours one or the other. Low demand and high stock levels may indicate a slant towards buyers. Conversely, low stock and high demand could favour sellers who could expect higher prices and faster sales.

The main indices are those issued by the banks such as ABSA (used by the Reserve Bank), FNB and Standard Bank. These are usually based on data from properties financed by the respective bank (repeat sales) and provide insight on market sentiment, price growth, time on the market and so on.

Mortgage originators such as ooba provide information on mortgage lending conditions including turnaround times, average deposit requirements, average price and so on. As they work with all of the banks, the index provides an excellent gauge on the lending climate.

Deeds office transactional data also provides a basis for reporting by Lightstone for example which reports on sales volumes and value, price growth and various trends including demographics and regional trends. Various analysts and economists also provide insight such as Erwin Rode (Rode's Report).

House Price Inflation (commonly known as "House Price Growth")

This tracks the extent to which selling prices are increasing which in turn indicates the growth in property values based on what sellers are prepared to pay in a particular area and for a particular property type.

On the whole, the indices provide a broad national or regional view, and it is important to note that there are always important local suburban differences. Estate agents use this information as a guideline and add to it local data and experience to provide a more accurate assessment of prevailing conditions.

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