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2005 House Price Growth Should be 22%
www.property24.com
3 November 2005
According to the latest Absa House Price Index, nominal house price growth declined further in October 2005, to 15.8% year-on-year.
This was the lowest year-on-year growth since August 2002 when it was 15.9%, and brought the average price of a house in the middle segment of the market to about R721 100 in October this year.
In September 2005 growth in nominal house prices of 17.6% was recorded compared with the same month in 2004. The average nominal year-on-year growth in house prices during the first nine months of the year was 23.4%.
In real terms, year-on-year growth of 12.7% was recorded in September compared with a revised growth rate of 15% in August, based on the headline consumer price index.
The average real year-on-year growth in house prices during January to September 2005 was 20.3%, which is based on a headline CPI inflation rate of 3.3% on average during this period.
On a month-on-month basis, nominal growth in house prices came to 0.5% in October this year (the lowest since the 0.5% recorded in September 1999) compared with a revised growth rate of 0.7% in September. In real terms, month-on-month growth was 0.3% in September (0.4% in August).
Based on the current mortgage interest rate and average price of a house in October this year, the monthly mortgage repayment and the gross monthly income required in order to afford a 100% mortgage, were 12% higher in the past month compared with October 2004. In September the year-on-year growth in these variables was 13.8%.
With CPIX inflation currently under upward pressure, an interest rate hike of at least 50 basis points is projected in early 2006.
In view of this, together with the important factor of affordability of housing, nominal house price growth of around 22% is forecast for 2005.
The current declining trend in house price growth is expected to continue into 2006, largely driven by higher interest rates during the course of the next twelve months.
As a result, nominal house price growth of between 5% and 10% is projected for next year. This implies that nominal house prices may decline on a month-on-month basis at some stage in 2006.
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