Looking at Absa’s affordability ratios, which factor in house prices and mortgage repayments as against household disposable income, the message is a mixed one.
On one hand, we have house prices rising ahead of household income, but lower interest rates have made the mortgage repayments more affordable. So in real terms houses are more expensive but our ability to service the mortgages has improved.
Once interest rates kick up again, it will have a serious impact on the affordability of buying a home. Fortunately, economists do not foresee higher interest rates for the next year.
Unfortunately, however, our debt levels have not improved measurably and the ratio of households’ debt to income is expected to remain at around 78% for the rest of the year, compared with 78,4% in the first quarter. This suggests that households remain very indebted.
Small houses come out on top
Unsurprisingly, relatively strong price growth showed up in the small houses category, based on affordability. Rising electricity prices, water tariffs and rates and taxes on property have increasingly had an impact on the cost of running a property, influencing buyers’ decisions.
The small houses category showed 29,2% year-on-year nominal growth (including inflation) and 23,5% y/y real growth (after inflation).
Medium-sized houses, meanwhile, showed 8,5% y/y (nominal) and 3,7% (real), and large houses showed 6,2% y/y (nominal) and 1,6% y/y (real).
In the affordable segment on the market, the average price of a house increased by a nominal 2,6% y/y to a level of R296 100 in the second quarter of 2010, declining by 1,9% in real terms.
Household finances improved
Household finances improved in the first quarter, driven by lower inflation, rising real household disposable income and a slightly lower debt-to-income ratio. But labour market conditions did remain tight.
It is expected that the economy will grow by 3,3% in real terms this year, driven by rising domestic demand, and consumer price inflation is forecast to bottom in the near future. However, Absa expects to see inflationary pressures later in the year, with double-digit administered price inflation and widespread wage increases of well above the inflation rate.
Nominal house price growth of around 10,5% is forecast, after last year’s marginal price decrease, but year-on-year price growth is expected to slow down in the second half of the year.
House prices are forecast to grow by 5% to 5.5% after inflation this year. House prices dropped by a real 6,9% in 2009, after declining by 6,3% in real terms in 2008.
Regional house prices analysed
Geographically speaking, home values increased further in nominal terms on a year-on-year basis in the second quarter, although prices were slightly down after adjusting for inflation in some areas, compared with a year ago. Both nominal and real prices were down in a few provinces, metropolitan areas and coastal regions.
Nominal year-on-year house-price growth varied between 7,1% in Mpumalanga to as high as 24,9% in the Eastern Cape in the second quarter. In major metropolitan areas, house-price growth ranged from a nominal 3,2% y/y on the East Rand in Gauteng to a fairly strong 22,6% y/y in the Durban/Pinetown area in KwaZulu-Natal in the second quarter.
And while the coastal market is recovering at a steady pace, it is still lagging in price growth, compared with some other regions — prices increased by a nominal 7,8% y/y in the second quarter, after rising by 6,3% in the preceding quarter.
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