Absa reports further decline in house price growth

South Africa’s nominal house price growth was 14,9% year-on-year in January 2006 compared with a revised growth rate of 15,5% in December 2005, according to the latest Absa House Price Index released in Johannesburg today, February 06.

This, the bank says, brought the average price of a house in the middle segment of the market to about R752 300 in the first month of the year.

In real terms, year-on-year growth of 11,5% was recorded in December compared with a revised growth rate of 12,3% in November, based on the headline consumer price index.
The average real year-on-year growth in house prices was 18,1% in 2005, which is based on an average headline CPI inflation rate of 3,4% last year.

On a month-on-month basis, Absa says nominal growth in house prices came to 1% in January compared with a revised growth rate of 1,2% in December. Real month-on-month growth of 1,1% was recorded in December last year.

Based on the current mortgage interest rate of 10,5% and the average price of a house in January this year, the monthly mortgage repayment and the gross monthly income required in order to afford a 100% mortgage, were 11,2% higher in the past month compared with January 2005 when the rise was 26,8%.

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 edged up to well above $60/barrel in recent times, the rand exchange rate remained relatively strong against the major international currencies since early this year, while CPIX inflation increased somewhat towards the end of last year.

In view of these developments, the Reserve Bank opted to leave interest rates unchanged at its MPC meeting last week, citing robust domestic demand and oil and food prices as potential risks to the inflation outlook.

Despite the abovementioned threats to inflation over the short term, Absa believes, as does the Reserve Bank, that CPIX will remain well within the inflation target range of 3%-6% in 2006. As a result, interest rates are forecast to move sideways for the rest of the year.

Against this background, Absa projects lower nominal house price growth of between 10% and 12% for 2006, with the affordability of housing continuing to play an important role.
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