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2006 Property Trends
By Jacques du Toit, Senior Economist, ABSA Bank
6 February 2006
According to the latest Absa House Price Index, 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. This brought the average price of a house in the middle segment of the market
(see explanatory notes) 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, 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, we believe, as is 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, lower nominal house price growth of between 10% and 12% is
projected for 2006, with the affordability of housing continuing to play an important role.
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