House price increases slowed last year but 2014 might well be better for home owners, extending the recovery of the last couple of years.
The average house was worth 6.8% more at the end of last year than at the end of 2012, according to the FNB's Property Barometer for December, released yesterday.
FNB property sector strategist John Loos said this was a slight slowing from the price increase of 7.1% in 2012 but, in real terms (after accounting for inflation), there had been some growth. It was small compared to the boom years leading up to the financial crisis in 2008. Those able to get mortgages faced house price increases of more than 25% in 2004 and 2005.
The housing market had four lean years from 2008 to 2011. After growth in 2012 and last year, the average house costs 19.3% more now than in 2007 in nominal terms, but inflation has gnawed away at the value of that investment. In real terms house prices are 18.5% lower than in 2007.
Loos said: "Prices remain far above those of a decade ago but still reflect a significant cumulative downward correction since 2007." He forecast house price growth of 9% this year despite a sluggish economy and little hope of an interest rate cut. Most economists expect the Reserve Bank to start raising interest rates by the second half of this year. But it is not only affordability that drives house prices. Relaxed lending criteria also play a part. "Long periods of low and stable interest rates, and better times in recent years regarding bad debts on mortgage books, can often be expected to drive a perception of lower risk among lenders and borrowers alike," said Loos.
He points to data from the National Credit Regulator that show that mortgage lending has accelerated, growing by as much as 20% by value in the third quarter of last year. And the interest rate is at an historic low. Absa Capital said in its quarterly outlook yesterday that it could stay unchanged for a while yet. "We are pushing out our ratehike [prediction] by a year, to [the third quarter of 2015], because the growth outlook has weakened and recent inflation has been lower than expected," Absa said.
Last year's sluggish residential building activity could also have an influence this year. "The second key factor is the supply side of residential property. This might also be supportive of higher house price growth despite slower growth of household disposable income," said Loos.
