Homes to become less affordable - expert | Fin24
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Homes to become less affordable - expert

Jan 23 2014 12:08
Johannesburg - This year it will probably become more of a challenge for South Africans to afford a home, according to John Loos, household and property sector strategist at FNB Home Loans.

"After six years of improving residential property affordability, 2014 could be a year in which this improving affordability trend is reversed mildly, and in which affordability becomes slightly more challenging," said Loos.

"This is based on our view that 2014 will yield higher house price growth in a supply constrained residential market, interest rates will remain unchanged, and average employee remuneration will show weak growth in an economy not showing any significant employment growth."

As at the second quarter of last year, the improving trend in affordability was still continuing, but at a very slow pace, having slowed down noticeably from 2011 onward.

"Certain key factors look set to work increasingly against further home affordability improvements for the time being, and possibly even bring about some  mild deterioration in 2014," said Loos.
"Interest rates aren’t yet one of these factors. We believe it unlikely that there will be any further interest rate cutting."

The South African Reserve Bank (Sarb) has intimated recently that there has been some debate at its last Monetary Policy Committee meeting regarding the timing of interest rate hiking.

"With consumer price inflation hovering near to the 6% upper target limit cuts seem unlikely. However, we don’t expect interest rate hiking just yet either," said Loos.

"Rather, unchanged interest rates through 2014 and hiking only to start in early-2015 is our expectation. Therefore, in 2014 we expect interest rates to be neutral for home affordability."

The two factors, therefore, expected to be negatives for home affordability are a year of mildly faster house price growth in 2014, and struggling labour remuneration growth.

Building activity has remained slow for the past five years and the FNB Estate Agent survey reports significant agent stock constraints, while FNB’s valuers too are reporting increasingly constrained supply along with gradually rising residential demand.

Expected house price inflation of 9% could likely exceed average wage inflation.

fnb  |  john loos  |  property  |  money


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