House price growth still low - Absa

Jul 28 2011 08:29

I-Net Bridge

Johannesburg - Growth in nominal house prices remained low, or was in negative territory in some segments of the market in the second quarter of 2011, according to Absa's calculations.
In some instances prices were rising steadily on a quarterly and annual basis, the bank said in its latest housing review.
"With consumer price inflation picking up during the second quarter, some real house price declines occurred on a quarterly as well as a year-on-year basis in the past quarter.
"House price trends varied at a geographical level in the country's provinces, metropolitan areas and major coastal regions. Price growth was evident on an annual as well as a quarterly basis in some regions in the second quarter of 2011.
"However, nominal price declines were recorded in a number of regions, while rising inflation caused prices to remain under pressure in real terms in the second quarter," Absa said.
It noted that the affordability of housing had improved further in the first quarter of 2011, impacted by low house price growth, slightly lower interest rates and rising household disposable income in the quarter. This is according to the latest trends in the ratios of house prices and mortgage repayments to household disposable income, it pointed out.
"Based on house price trends in the first half of 2011, and prospects for the economy and household finances, nominal house price growth of between 1% and 2% is forecast for 2011, rising to about 4% in 2012," the bank forecast.
"In consideration of the outlook for nominal price growth and the projection of consumer price inflation averaging 5% this year and 6% next year, house prices are set to decline in real terms in both 2011 and 2012," it added.

Banks' Hesitancy Pulling Down House Prices

*This article was first published by Rode & Associates Property Consultants

After peaking in the first half of 2010, the yearly growth in the value of new mortgage loans granted for residential property has been heading strikingly south. In fact, the deceleration in growth has been so sharp that in March 2011 the value of new loans granted was actually lower than what it was a year earlier. Naturally, contractions in mortgage loans granted, act as a restraining factor on price movements. This is illustrated by the graph, which depicts a robust correlation between the growth in house prices and the growth in the value of new mortgage loans granted.

The residential mortgage and house markets can at least take heart from the solid growth (+8%) in nominal household disposable income recorded in 2011q1. What’s more, the trend for hikes in wages and salaries to exceed inflation by a wide margin seems to be neverending — never mind the eventual value-destroying consequences. For now, however, financiers will continue to be constrained by the still frustratingly high ratios of debt to disposable income, which have not come down by much since the peak of the boom. Naturally, this forms an important brake on the granting of mortgage bonds. In addition, the looming interest rate hikes in the wake of rising inflation are not going to improve affordability. Add to this the litany of sharp increases in utility charges, toll roads, rates and taxes on property, and the introduction of National Health Insurance.

And then we haven’t even considered the problems that the fiscus will face in years to come.

Thus, we stick to our forecast that real house prices will keep declining for another few years.