House price spurt short-lived

Johannesburg – A short-lived growth spurt in house prices has come to an end as the lack of further interest rate relief hit the residential property market.

FNB's July House Price Index, released on Monday, showed the rate of increase in house prices is slowing down.

The index recorded year-on-year house price inflation of 10.6%, down from the previous month's revised 12.4%. On a month-on-month basis the index declined by -0.6%, following a small rise the previous month. The cost of the average house in July was R787 694.

FNB property expert John Loos said residential demand slowed due to the lagging economy and a lack of further interest rate cuts.

"An era of mediocre 'mini-cycles' will probably be with us for a few years to come," said Loos.

Since 2009, house prices have risen by over 11%.

However, according to Loos, the high level of household indebtedness will stunt the sector's growth for the next few years.

"It was this high debt ratio, and significant financial pressure on the household sector during the recession, which curbed the response of aspirant homebuyers to last year's big interest rate cuts and made the recent recovery a mild one," said Loos.

South African households' debt to disposable income ratio is 78.4%.

According to the index, the South African Reserve Bank's (Sarb's) policy is well balanced in that it aims to keep interest rates stable to help households manage high debt levels.

"In short, Sarb is providing little in the way of short-term stimulus for residential property, and looks unlikely to do so in any significant way in the near term," said Loos.

The report also showed the average supply of homes in South Africa remains higher than the demand.

 - Fin24.com