South Africa recorded average house-price growth of 21,9% in 2005, down from the rapid 32,2% average growth seen in 2004, according to the latest Absa house-price index, released on Wednesday.
Banking group Absa is expecting house-price growth to slow further in 2006, to between 10% and 12% year-on-year.
According to the December index data, nominal house price growth declined to 14,7% year-on-year in December from 15,7% in November, down sharply from 30,8% in January. This brought the average house price in South Africa to about R700 200 in 2005, up from R574 200 in 2004, with prices averaging R738 900 in December 2005.
Absa senior economist Jacques du Toit said that in real terms, house-price growth came in at 11,9% year-on-year in November, compared with a revised 12,3% in October, based on the headline consumer price index (CPI). The average real rise in house prices over the January to November 2005 period was 18,7% year-on-year, based on an average headline CPI of 3,4%.
On a month-on-month basis, nominal growth in house prices came to 0,7% in December versus a revised 0,9% in November. Nominal month-on-month growth has been on a declining trend since the 3% recorded in January 2004, Du Toit noted.
“With CPIX inflation [headline consumer inflation less mortgage rate changes] currently well under control and a much stronger rand exchange rate since late last year, interest rates are expected to remain at current levels throughout 2006,” he commented. “However, the oil price edged up to above $60 per barrel again, which may lead to inflationary pressures if the rand exchange rate depreciates significantly from its current level.
“Against this background, lower house-price growth of between 10% and 12% is projected in 2006, mainly driven by the combined effect of the affordability of housing and interest rates remaining low over the next 12 months. In view of this, mortgage advances growth is forecast to remain relatively strong during the course of this year, although growth will probably be lower than the around 27% recorded last year.
“As a result, the ratio of household debt to disposable income, which was at an all-time high of 63,4% in the third quarter of last year, is expected to rise further to a level of about 67% by the end of 2006. Such a level of household debt is not regarded as a crisis, as interest rates are projected to remain low over the next 12 months.”
Du Toit added that Absa is forecasting real household disposable income growth of almost 6% for 2006; thus households in general should not be finding it too difficult to handle a debt-to-income ratio of almost 70% by late 2006 or early 2007.
The Absa house-price index is based on the total purchase price of houses between 80 square metres and 400 square metres, valued at R2,2-million or less in 2004 (including improvements), in respect of which loan applications were approved by Absa. — I-Net Bridge