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Cape Town - House price and instalment trends for first-time property buyers over the last decade show that mortgage affordability has structurally improved, according to analysis by Standard Bank.
It said on Wednesday this is largely due to the median income of a first time buyer growing faster than the median price of a house demanded by a first time buyer, combined with historically low interest rates.
However, cyclically, due to SA being in a downward phase of its business cycle and in a hiking phase of its interest rate cycle, affordability is worsening, the bank cautioned.
Over the past decade, the median income of a first-time home buyer has grown from around R15 000 in the first quarter of 2006 to R28 869 in the first quarter of 2016. Over the same period, prices of the homes demanded by first time buyers grew from R360 185 to R625 000. Comparatively, over this period, income growth of 92% has outpaced house price growth of 74%.
The ratio of income to prices has resulted in improved mortgage affordability for first time.
"Our finding, that income versus house price growth has improved affordability over the period, can be extended more broadly to all home buyers. Average remuneration per worker for those employed in the formal non-agricultural sector has grown 150%, versus Standard Bank’s house price index which shows growth of 85% on an average house," according to the report.
"Therefore, even in the context of an average consumer, growth in income seems to have assisted mortgage affordability."
"With house prices lagging income, and interest rates remaining low, therefore anchoring the cost of servicing a mortgage, a median first-time buyer is in a relatively better position to acquire and pay for their home than they were a decade ago," stated the report.
However, from a business cycle perspective affordability is worsening, because gross domestic product (GDP) growth is slowing and SA has entered a downward phase of its business cycle. GDP drives income and the demand for mortgages, as well as banks’ appetite for risk and consequently the supply of mortgages."
Standard Bank noted that in the last downward phase of SA’s business cycle, income growth took a while to respond to slower GDP growth. In keeping with this trend, as SA entered the latest downward phase of its business cycle in December 2013, income growth continued to rise for almost two years, and began slowing in the third quarter of 2015.
"From a supply of mortgages perspective, we find that the average loan-to-purchase price (LTP) leads GDP growth, indicating a forward-looking approach in bank lending practices," according to the report.
"A median first-time buyer generally qualifies for a smaller loan as a percentage of the purchase price as GDP slows and interest rates rise. In the current cycle, the loan-to-purchase price started declining in the third quarter of 2013."
