A lower growth in house prices in the first quarter of 2005 is an indication of a residential property market that is cooling off, according to Absa.
Nevertheless, it says real growth in house prices is expected to be positive for 2005 for the sixth consecutive year, with a nominal house price growth of between 15% and 20% forecast for the year.
The average price of houses in the so-called middle segment (80m²-400m² and priced at up to R2,2-million) rose by a nominal 28,9% year-on-year (y/y) to about R662 500 in the first quarter of 2005. In real terms, house prices rose by an average 25,3% y/y in the past quarter. In both nominal and real terms, the y/y growth in house prices in the first quarter of 2005 was down on that of the previous quarter, when it was 34,2% and 30,1% respectively.
Against this background, it appears that house price rises in the middle segment already peaked in the third quarter of last year, said Absa.
On average, house prices in the various regions continued to rise relatively strongly in the first quarter of 2005 compared with a year ago, with nominal y/y price rises varying from as high as 41,7% in Mpumalanga to 23,2% in KwaZulu-Natal.
With regard to the country’s largest metropolitan areas, nominal house price increases in the first quarter of 2005 varied from 41% y/y in the Port Elizabeth-Uitenhage area to 22,9% y/y in the Durban metro area, according to Absa.
In the first quarter of 2005, building costs increased by 14% compared with the same quarter in 2004. This contributed to the average price of a new house in the middle segment rising a nominal 14,2% y/y to about R724 500 during the past quarter. The average price of an existing house in the same market segment rose by a nominal 32,2% in the first quarter of 2005 to about R649 800, which represents a real rise of 28,5%.
Against this background, the nominal price difference between new and existing houses declined to about R74 700, or by 10,3%, in the past quarter. This is the smallest difference since the 10,5% recorded in the third quarter of 1989. The price difference between new and existing houses has been displaying a sharp declining trend since the first quarter of 2003, when it reached a record high of 31,4%.
In the first quarter of 2005, house prices in the luxury category (houses costing more than R2,2-million in 2004 in respect of which mortgage applications were approved by Absa) rose by a nominal 11,8% y/y to R3,3-million. This came to growth of 8,7% y/y in real terms. In both nominal and real terms, the declining trend in the y/y growth of house prices in this category, which reached its upper turning point in the second quarter of last year, continued in the first quarter of 2005.
The average price of houses in this category (40m²-79m² and priced at up to R193 000 in 2004) rose by a nominal 19,2% y/y to R135 500, compared with a 22% y/y rise in the preceding quarter. In real terms, this represents a 15,8% y/y increase in the first quarter of this year and 18,3% in the fourth quarter of 2004.
“Against this background, the growth in house prices in the affordable category already seems to have reached its upper turning point,” Absa said.
Looking ahead, Absa said CPIX inflation was forecast to remain within the inflation target range of 3% to 6% during the course of the year. Given the expectation of minor inflation pressure, interest rates should decline somewhat further during 2005, with the possibility of an increase by the second quarter of 2006, it added.
“However, if the relatively high international oil prices of the past while, which have already led to higher domestic fuel prices, continue unabated, this could place upward pressure on inflation and interest rates, especially if accompanied by a sharp weakening in the rand exchange rate.
“A strongly growing economy will support the housing market this year, but the declining trend in house price growth since late last year, mainly as a result of affordability, is expected to continue. Consequently, nominal house price growth of between 15% and 20% is forecast for 2005, compared with the more than 30% recorded in 2004. Taking into account the inflation prospects for this year, the real growth in house prices is expected to be positive for the sixth consecutive year,” the banking group said. – I-Net Bridge