Absa - Affordability of housing

Based on interest rate and house price trends in the third quarter of 2006, the average mortgage repayment and the qualifying gross income levels were 20,2% up on the same quarter last year, according to Absa’s Residential Property Perspective : Fourth Quarter 2006 released today.

In the third quarter of 2005, this growth rate, the country’s largest mortgager lender says, was still at 15,5%.

The house price-to-remuneration ratio tapered off somewhat in the first quarter of 2006 (the most recently data available for remuneration) from the preceding quarter. This was the net result of house price growth slowing to 16,4% y/y at the time, whereas nominal growth in remuneration was 7,3% in the first quarter of 2006 compared with 4,4% in the fourth quarter of last year.

The mortgage repayment-to-remuneration ratio, which can also be regarded as an indication of the affordability of mortgage debt, also declined slightly in the first quarter of the year. This development in the mortgage repayment-to remuneration ratio can be ascribed to slower-growing house prices and low interest rates over the past twelve months, whereas growth in remuneration remained relatively strong.

The decline in the abovementioned two ratios from the final quarter of 2005 to the first quarter this year implies that the gap between house price growth and mortgage repayments, on the one hand, and remuneration, on the other, has narrowed. This means that housing was, in effect, slightly more affordable in the first quarter of the year compared with the fourth quarter of last year. Future trends in these two affordability ratios will depend on developments with regard to house prices, interest rates and remuneration.
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