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Johannesburg - Standard Bank's median house price fell to R520 000 in May from R530 000 in April. This was compared to a median house price of around R599 000 in May last year.
As a result the year-on-year growth in the median house price for May saw a significant decline of -13.2%. The five month moving average growth rate in the median house price was -5.5%.
According to Standard Bank, in the months leading up to the implementation of the National Credit Act (NCA) a strong upward movement in the median house price occurred.
"This was a result of the attempts by market participants to process higher end properties to preempt the increased rigour in qualifying for mortgage finance that the NCA imposed. As such, a high base from which current year-on-year growth rates are calculated was established.
"There is thus a technical distortion that suggests that we are overstating the extent of the decline in house prices. Furthermore, the distortive base effect is likely to impact the data for the next two months," the bank said on Monday.
"This notwithstanding, the downward trend in the median house price also reflects the large decline in demand for residential property," it added.
It said the far softer demand conditions in the residential property market are in turn primarily a function of the deteriorating health of consumer balance sheets.
"In our view, we have in all likelihood entered a period of national house price deflation which we see as a correction in house prices to more plausible levels. This trend has merely been exacerbated by rising inflation and higher interest rates in an environment of record high household
indebtedness."
The bank cautioned that conditions in the residential property market are likely to deteriorate further in the coming months.
"The hawkish rhetoric from the South African Reserve Bank (SARB) governor in recent weeks, suggests that the bank is determined to prevent the occurrence of an inflationary spiral and to anchor inflation expectations at lower levels and engineer a return of inflation back to within the targeted range.
"The SARB will in all likelihood increase the repo rate by another 50 bps at the Monetary Policy Committee Meeting (MPC) meeting later this month. There have even been suggestions of an increase of 100 bps at the June MPC meeting," the bank states.
It cautioned however that a further interest rate increase will merely cause more deterioration in the affordability of residential property, will lead to a further reduction in the volume of new mortgages granted and registered and lead to even softer house price growth.
"A prime rate of 15.5% p.a. will mean that the monthly mortgage instalments will be approximately 36% more than they were in June of 2006 when the current bout of interest rate increases commenced," it added.
- I-Net Bridge