SOUTH AFRICAN HOUSE PRICES AT A GLANCE
Category Market Conditions
The bank reveals that nominal year-on-year (y/y) price deflation was recorded in all the small, medium and large house categories of the housing market in March 2012, with values starting to decline on a monthly basis at various stages during the course of last year.
Writing in the Absa House Price Index report, Jacques du Toit, property analyst at Absa Home Loans says in real terms, home values continued to deflate up to February this year, based on headline consumer price inflation of 6.1 percent y/y in the month.
Average nominal price levels of small homes in March were R620 700 (80 to 141 square metres), medium sized homes (141 to 220 square metres), R961 600 and large homes measuring between 221 to 400 square metres recorded average nominal price of R1 476 million.
Du Toit says the latest trends in house prices are believed to be a reflection of macroeconomic developments and property-related factors such as running costs impacting household finances.
“These factors may affect the demand for housing and cause changes in property buying trends, which will impact market activity, price trends in the various segments of the market, and the demand for mortgage finance.”
Du Toit says the residential property market is expected to continue to be affected by macroeconomic and household finance-related factors in the rest of the year.
These may include the following:
- Economic growth, measured by the change in the country’s gross domestic product.
- Consumer price inflation, affecting consumers’ spending power.
- Interest rates, affecting the affordability of debt and the cost of servicing debt.
- Household finances and consumers’ risk profile, impacted by factors such as employment, income growth, savings, debt and debt servicing and the state of consumer credit records.
- The affordability of property and accessibility of mortgage finance, which will be determined by factors such as property prices, interest rates, household finances and banks’ lending criteria.
- Consumer confidence, which is measured by expectations with regard to the performance of the economy, household finances and consumer demand for durable goods such as household appliances, furniture and electronic equipment.
He says if these trends in house prices continue, nominal and real price deflation for the year as a whole is a strong possibility.
The FNB Segment House Price Review Q1 2012 saw an acceleration in house price growth in almost all segments of the market when segmented by room number and title deed.
With wage growth having seemingly slowed in 2011, house price growth more recently accelerating mildly and no sign of further interest rate reduction since late-2010.
It would appear that the steadily improving housing affordability trend since around 2009 has almost ground to a halt, notes the bank.
FNB Home Loans property strategist John Loos says viewing home affordability from a price relative to average employee remuneration perspective, there was a major improvement in home affordability for the average income earner from the second quarter of 2008 until the end of 2010.
This was due to the combination of average wage growth outstripping growth in house prices, and of course, for those using credit there was major drop in interest rates over much of that period.
Loos explains that labour data runs behind national economic data, so the traditional affordability measures only run up until the 3rd quarter of 2011.
At that stage, the average price/average labour remuneration ratio index (Q3 2000=100) had reached a level of 118.55.
While still 18.55 percent up on mid-2000, this represents a massive -27.2 percent decline (improvement) on the peak of in-affordability reached in the first quarter of 2008.
The second measure of affordability, (for example, the loan instalment value of a 100 percent bond on the average-priced house/average labour remuneration ratio), has seen an even bigger decline of -48.8 percent since its peak as at Q1 2008.
Loos says Q3 2011 data showed both measures of affordability having improved very little from the fourth quarter of 2010, the former index -0.6 percent lower and the latter -1.8 percent lower.
The reasons for slowing affordability improvements are driven by all three variables that are used in the affordability measures.
Average remuneration inflation in 2011 was significantly slower than 2009/10, and although still ahead of weak house price growth as at the third quarter of 2011, the gap was narrowing between the two.
He says as a result of the affordability drive, the Affordable Housing Segment continues to outperform other segments with two bedroom full title sub-segments showing the best price growth when segmented by title deed and room number.
Loos says the entire full title segment has shown significant average price growth (10.6 percent y/y in Q1 2012) over the sectional title segment (2.2 percent in the same period).
“We believe that this reflects both more of a post-boom oversupply in the sectional title market and the search for affordability making full title property temporarily more popular,” says Loos.
The affordability drive can also be seen in the FNB house price indices segmented by home size, with small-sized units’ price growth outstripping that of medium and large-sized units.
Loos points out that the first quarter of 2012 saw price growth accelerations in all of the sub-segments of housing when segmented by title deed, room number or size.
This affordability drive is expected to continue as households continue to repair their balance sheets.
Meanwhile, ooba reports that property prices showed positive y/y growth of 1.6 percent in March and month-on-month growth of 0.7 percent, making this the fifth consecutive month ooba has recorded an increase in residential property prices.
The March oobarometer price index reveals that the average house price rose to R874 228 from R860 492 a year earlier.
The average purchase price among first-time buyers continues to show a y/y increase of 1.1 percent to R629 789 from R623 179 recorded in March 2011.
According to Saul Geffen, chief executive officer of ooba, the value of home loan approvals for March was up 49 percent y/y.
The average approved bond size showed a nominal increase of 0.1 percent to R730 904 from R729 876 a year ago, while the average deposit increased by 7.9 percent to R143 324 from R130 616 in March 2011.
The average deposit is now equivalent to 16.4 percent of the purchase price, adds Geffen. – Denise Mhlanga