South African house prices increased by a record 26,3% year-on-year (y/y) in July 2004 from a revised record 26,1% y/y in June 2004 and a revised 25,7% y/y in May.
This meant that house prices have doubled since June 2000, while consumer inflation has risen by less than 25% over the same period.
This was the fourth consecutive month that house prices have risen by 25% or more y/y and the eighth consecutive month that house prices have risen by more than 20% y/y, according to South African commercial bank Absa’s monthly house price index released on Friday.
As South Africa’s largest home loan provider, until 2002 Absa released a quarterly survey of house prices based on loan applications to the bank.
The monthly index is based on the total purchase price of houses including swimming pools and other improvements for houses valued at less than R1,6-million and measuring between 80 and 400 square metres. The index has been compiled back to January 1999.
The previous record quarterly y/y increase was in the second quarter of 1981 with a 23% rise.
Absa said the upward trend in house price growth since October last year can largely be ascribed to the lower interest rates since mid-2003. Prior to this episode, the last time that house prices rose by more than 20% y/y was in October and November 2000.
The South African Reserve Bank (SARB) cut interest rates in mid-June 2003 for the first time since September 2001. The SARB followed up the June 2003 rate cut with further rate cuts in August, September and October and December for a total of 550 basis points, reducing the home-loan rate to only 11,5%.
Absa expects interest rates to remain stable for the rest of this year and next year as well.
Nominal y/y increases have only exceeded 20% y/y 10 times so far in the past 43 months for which data is available, while the recent y/y low was 13,4% in December 2001.
Growth in house prices for 2003 came to 19% y/y compared with 15,2% y/y in 2002. The average real growth rate for 2003 was 13% compared with 6% in 2002.
Monthly increases have slowed recently as the market came off the boil and were 1,43% in July from 1,76% in June, 1,95% in May, 2,27% in April and a record high of 2,61% in February 2004. — I-Net Bridge