Absa holds firm on 12% growth in house prices

Absa is holding firm on its forecast of average nominal house price growth of 12 percent for this year in spite of this being the lowest year-on-year growth for more than six years.

Its most recent endorsement to the increase is contained in its May 05 Housing Price Index announcing a nominal year-on-year house price growth of 12,8% being recorded by the bank in April 2006 compared with a growth rate of 13,7% in March.

This, the bank notes, was the lowest year-on-year growth since January 2000 when it was 11,8% and brought the average price of a house in the middle segment of the market to about R770 000 in April. The average nominal year-on-year growth in house prices in the first four months of 2006 was 14%.

In real terms, year-on-year growth of 10% was recorded in March compared with a
growth rate of 10,2% in February, based on the headline consumer price index. The average real year-on-year growth in house prices came to 10,3% in the first three months of 2006.

On a month-on-month basis, nominal growth in house prices was down to 0,5% in April compared with a growth rate of 0,7% in March. Real month-on-month growth of only
0,2% was recorded in March this year.

Based on the current mortgage interest rate of 10,5% and the average price of a house in April this year, Absa says the monthly mortgage repayment and the gross monthly income required in order to afford a 100% mortgage, were 11,1% higher in the past month compared with
April 2005 when the rise was 20,1%.

Although housing is, in general, still less affordable than a year ago according to this analysis, the rate of deterioration has decelerated significantly during the course of the past twelve months.

The international price of oil is currently well above $70/barrel, while the rand is relatively strong against the major international currencies, largely driven by high precious metal prices. CPIX inflation dropped to 3,8% in March from 4,5% in February, and is forecast to
remain within the inflation target range of 3%-6% in 2006.

The Reserve Bank decided to keep interest rates unchanged at the April MPC meeting, but mentioned rising international oil prices and strong consumer demand as the main threats to the inflation outlook.

The significant cut in transfer duty on property, announced in the Budget in February, Absa says did not lead to stronger growth in house prices during March and April, although volumes did appear to have increased over this period.
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