House price growth 'near turning point'

Johannesburg - Growth in the average value of homes in some categories of housing in the middle segment of the South African residential property market appears to have reached an upper turning point‚ Jacques du Toit‚ property analyst at Absa Home Loans‚ said on Monday.

“As expected for some time‚ base effects and slowing monthly price growth since mid-2012 have caused year-on-year price growth to start moderating. These price trends are according to the Absa house price indices‚ which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small‚ medium-sized and large homes‚” he said.

Middle-segment house price growth came to 11.8% year-on-year (y/y) in March 2013‚ after rising by a revised 10.9% y/y in February. Real price growth was recorded at 4.8% y/y in February after adjustment for the effect of consumer price inflation‚ which was 5.9% y/y in the month.

The average nominal value of homes in each of the three middle-segment categories was as follows in March 2013:

Small homes (80m²-140m²): R752 600

Medium-sized homes (141m²-220 m²): R1 079 500

Large homes (221m²-400m²): R1 609 600

Headline consumer price inflation is driven by inflationary pressures coming from rising fuel prices and a weaker rand exchange rate since the beginning of the year‚ and is forecast by the

South African Reserve Bank to average 6.3% y/y in the third quarter of 2013 before slowing down gradually to just more than 5% in the fourth quarter of 2014.

The key monetary policy interest rate - the repo rate - was kept unchanged at 5% per annum by the Monetary Policy Committee at its second meeting of the year in March. As a result‚ banks’ prime and variable mortgage interest rates remained stable at 8.5% per annum.

Against the background of expected real economic growth of 2.7% in 2013 (2.5% in 2012) and inflation forecast to average around 6% for the full year‚ interest rates are projected by Absa to remain at current levels throughout the year.

“Continued low interest rates will benefit housing and mortgage finance affordability. Nominal year-on-year house price growth appears to be peaking in some categories of the middle-segment of the market‚ influenced by market conditions and slowing month-on-month growth in the past few months. Nominal price growth for the full year is forecast to be in single digits‚ with real price trends to be driven by a combination of nominal price movements and consumer price inflation.