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Johannesburg - Year-on-year growth in the nominal value of middle-segment homes in the SA residential property market slowed down further in November 2014, according to Jacques du Toit, property analyst at Absa Home Loans.
This trend is against the background of a continuing declining trend in month-on-month price growth since early this year.
In real terms - that is after adjustment for the effect of consumer price inflation - year-on-year house price growth was in positive territory, but remained relatively low in the ten months up to October on the back of inflation averaging 6.2% year-on-year (y/y) over this period.
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.
The average nominal value of homes in each of the middle-segment categories was as follows in November 2014:
- Small homes (80m²-140m²): R852 000;
- Medium-sized homes (141m²-220 m²): R1 191 000;
- Large homes (221m²-400m²): R1 814 000.
"The South African Reserve Bank’s Monetary Policy Committee kept the key monetary policy interest rate – the repo rate – unchanged at their last meeting of the year in November, with the result that commercial banks’ prime and variable mortgage rates remained stable at 9.25% per annum," said Du Toit.
The interest rate decision came on the back of a slight downward adjustment to the Reserve Bank’s inflation forecast as a result of the view that the risk to the inflation outlook is largely balanced, impacted by sharply lower international oil prices.
Domestic fuel prices have been substantially lowered between the beginning of September and early December on the back of the lower oil price, with these trends seen as positive for inflation over the short to medium term.
"The expectation is for headline consumer price inflation to average just above the 5% level in 2015, with interest rates forecast to remain on hold until May next year before being hiked to keep inflation in check," said Du Toit.
"The current projection is for interest rates to rise by a cumulative 75 basis points between May and November 2015, which will bring prime lending and variable mortgage interest rates to a level of 10% per annum by year-end. Further hikes in interest rates will, however, add to the financial pressure experienced by consumers and affect the affordability of and demand for credit."
In view of the abovementioned trends and prospects, as well as house price growth in the first eleven months of the year, nominal price growth of around 9% is forecast for the full year, he said.
"The expectation is for house prices to rise by a nominal 7.5% in 2015, with real price growth to come in at about 2%, based on current inflation projections for next year," he said.
