Nominal house price growth of 12,3% year-on-year was recorded in May 2006 compared with a revised growth rate of 13,2% in April, according to the latest Absa house-price index.
This was the lowest year-on-year growth since early 2000 and brought the average price of a house in the middle segment of the market to about R776 200 in May. The average nominal year-on-year growth in house prices came to 13,8% in the first five months of 2006.
In real terms, year-on-year growth of 9,6% was recorded in April compared with a revised growth rate of 10,2% in March, based on the headline consumer price index. This was the lowest real year-on-year growth since March 2003 when it was 9,1%.
The average real year-on-year growth in house prices came to 10,2% in the first four months of 2006.
On a month-on-month basis, nominal growth in house prices was down to 0,5% in May compared with a revised growth rate of 0,7% in April. Real month-on-month growth of only 0,2% was recorded in April this year.
Based on the current mortgage interest rate of 10,5% and the average price of a house in May this year, the monthly mortgage repayment on a 100% mortgage on a house of R776 205 was R7 749 rand over a period of 20 years. This was 12,3% higher compared with May 2005.
The gross monthly household income required to qualify for the abovementioned mortgage of which the monthly repayment does not exceed 30% of income was R25 831 in May.
Although CPIX inflation declined to 3,7% in April from 3,8% in March and 4,5% in February, inflationary pressures increased in recent times. Food price inflation is on an upward trend since late 2005, the international price remained above $70/barrel, domestic fuel prices are set to increase further this week and the rand exchange rate is significantly weaker against the major international currencies compared with a month ago.
The South African Reserve Bank’s monetary policy committee (MPC) meets later this week to decide on the way forward for interest rates.
These inflation-related developments will be thoroughly debated by the MPC, while also taking into account factors such as the widening current-account deficit and continued strong growth in domestic credit extension, especially with regard to mortgage advances.
The risk of a hike in interest rates has increased, but the rates are expected to remain unchanged until October this year, when a 50 basis-point hike is expected. In view of these developments and expectations, average nominal house-price growth of 11,5% is projected for 2006. — I-Net Bridge