Affordability of housing

The house price-to-remuneration ratio increased further in the second quarter of 2007 (the most recent remuneration data available) and reached its highest level since the fourth quarter of 1984, according to the Absa Housing Review for the first quarter released today

“This ratio,” the bank says “is on an upward trend since the beginning of 2000 when the housing market entered a boom phase, which caused property prices in 2004 to rise at rates last seen in the early 1980s.

The ratio of mortgage repayments to remuneration has accelerated significantly since the middle of 2006, to its highest level in the second quarter of last year since the end of 1991. This was mainly as a result of the 400 basis points’ worth of interest rate hikes over this period, which caused mortgage repayments to have increased by around 28% in total.

The upward trend in the two affordability ratios implies that house prices and mortgage repayments are rising at a faster rate than remuneration, which means that housing is in effect becoming less affordable.
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