House prices will sink further: Absa Home Loans - Property | Moneyweb

House prices will sink further: Absa Home Loans - Property Moneyweb

On the back of rising headline consumer price inflation.

(I-Net Bridge) - House prices in real terms are expected to continue to decline for the rest of the year and in 2012 on the back of rising headline consumer price inflation, which is forecast to marginally breach the 6% level by the end of the year and for part of 2012 according to Jacques du Toit, property analyst at Absa Home Loans.

Du Toit said that based on house price trends up to the third quarter, and prospects for the economy and household finances, nominal price growth in the middle segment of the market was forecast to be well within single digits for the full year, projected at between 2% and 2.5%.

Absa Home Loans released their fourth quarter housing review report on Thursday, outlining trends in South African house prices and other property market related indicators up the third quarter of the year.

The report pointed out that SA's real economic growth came to a seasonally adjusted annualised rate of 1.3% in the second quarter of 2011, after rising by 4.5% in the first quarter.

Growth was influenced by global and domestic demand trends; the Japanese earthquake and tsunami, which negatively affected the local manufacturing sector as a result of supply shortages; and labour action in some sectors of the economy, which impacted production and service delivery. Real economic growth of 3.1% is projected for 2011, marginally higher than growth of 2.8% achieved in 2010.

Household income and consumption expenditure continued to grow in real terms in the second quarter, although at a slower pace as a result of rising inflation, which impacts consumers' spending power. The ratio of household debt to disposable income was somewhat lower at around 76% in the second quarter, which contributed to contain the cost of servicing debt against the background of low interest rates.

Du Toit said that many consumers were still battling with impaired credit records, negatively affecting their ability to take up credit, with this situation being reflected in continued low growth in household credit extension.

Trends in nominal house prices varied on an annual as well as a quarterly basis in the different segments of the market and geographical areas in the third quarter. In real terms, i.e. after adjustment for the effect of consumer price inflation, house prices declined year on year and quarter on quarter in the various regions and categories of housing during the quarter. Recent trends in house prices are believed to be affected by various factors related to the macro economy and the state of household finances.

The ratios of house prices and mortgage repayments to household disposable income, depicting the affordability of housing, were virtually unchanged in the second quarter. This was the net result of trends in house price and income growth during the quarter, while interest rates remained unchanged during this period. As a result, the affordability of housing remained favourable up to mid-2011.

Du Toit said that many households' ability to take advantage of these affordability trends was however still hampered by a relatively high level of indebtedness, impaired credit records, the impact of the National Credit Act and banks' resultant lending criteria.

The continued low growth in outstanding mortgage balances in the household sector is indicative of the impact of these factors on the residential property market, and the demand for and accessibility of mortgage finance.


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