Absa reports house price growth slips in July

A nominal year-on-year growth of 21,4 percent in house prices was recorded in July 2005 compared with a growth rate of 23,3 percent in June this year, according to the latest Absa House Price Index.

The average nominal year-on-year growth in house prices during the first seven months of the year, as recorded by the country’s largest commercial bank, was 26,1 percent.

In real terms, year-on-year growth of 19,9 percent was recorded in June compared with a growth rate of 20,9 percent in May, based on the headline consumer price index. The average real year-on-year growth in house prices during January to June was 23,2 perrcent, which is based on a headline CPI inflation rate of 3,1 percent on average during this period.

On a month-on-month basis, nominal growth in house prices was 0,9 percent in July compared with 1,1 percent in June this year. This was the lowest month-on-month growth recorded since March 2002, when it was also 0,9 percent.

The monthly mortgage repayment and the qualifying gross monthly income were up by 13,6 percent in July 2005 compared with July last year (15,4 percent in June), based on current interest rates and average house prices. The year-on-year growth rates of the mortgage repayment and qualifying income variables are still on a declining trend after peaking at 26,8 percent in December 2004. Although housing is in general still less affordable than a year ago, this is an indication that affordability has not deteriorated during the course of 2005.

In view of recent trends in the international oil price, the rand exchange rate and domestic credit extension, the Reserve Bank is not expected to cut interest rates any further this year. This will mainly be as a result of the possible adverse effect these developments can have on inflation in the rest of the year.

The declining trend in house price growth is expected to continue for the remainder of 2005, with average nominal growth of around 20 percent projected for the year, compared with growth of more than 32 percent recorded in 2004. Against this background, the affordability of housing will remain an important factor over the next 12 months, especially for first-time home buyers.
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