South African house prices slowed somewhat to a nominal increase of 19% year-on-year (y/y) in December 2003 from 19,6% y/y in November, according to South African commercial bank Absa’s monthly house price index (HPI) released on Monday.
The November real y/y increase was 19,1% if deflated by the latest available consumer inflation rate of 0,4% y/y. This is the highest real y/y increase since October 1981.
The recent highest nominal y/y increase was 20,9% in May 2003, while the recent y/y low was 13,3% in December 2001.
Growth in house prices for 2003 came to 19,8% y/y compared with 15,7% y/y in 2002.
The average real growth rate during the period January to November this year was 12,8% compared with 6,2% during the first 11 months of last year.
The increasing ratio of house prices to income (an indication of the affordability of housing and which implies that house prices continue to increase faster than income) and declining interest rates are probably still the most important factors driving the housing market at present.
Absa said the lower interest rates are also influencing households’ consumption patterns with regard to other interest rate-sensitive goods such as motor vehicles, as well as retail sales in general.
The recent strong growth in passenger car sales and real retail sales is a case in point. The net effect of these factors is that the growth in house prices has been showing a mildly declining trend since the middle of 2003.
This is seen in the pattern of monthly increases, which was only 1,07% in December 2003 from 1,27% in November 2003 and a recent peak of 1,89% in March 2003.
With the mortgage rate forecast to reach a level near 10% in the first half of 2004, which will be the lowest rate since mid-1974, the residential property market is expected to continue performing relatively well during the next 12 months.
House prices have now risen by 70% since 2000, while consumer inflation has risen by less than 21% over the same period.
In 2001 the average annual increase was 14,2% compared with 17,9% in 2000.
As South Africa’s largest home loan provider, Absa has up until 2002 released a quarterly survey of house prices based on loan applications to Absa.
The monthly index is based on the total purchase price of houses including swimming pools and other improvements for houses valued at less than R1,5-million and measuring between 80 square meters and 400 square meters.
The HPI has been calculated back to January 1998 and shows that the y/y increase peaked at 21,7% in October 2000.
The 172% y/y rise in transfer duties on properties sold to R722-million in August 2003 reflected the booming South African property market.
This was not a one-off fluke in reaction to recent interest rates cuts, as the y/y increase for the first eight months of the fiscal year, which started in April, was 47,8%.
The South African Reserve Bank has cut interest rates by 550 basis points in 2003 and Absa expect a further 100 basis points cut in February, but they could start rising again in the third quarter of 2004. — I-Net Bridge