Property market cooling off as incomes lag prices

Posted On Friday, 15 April 2005 02:00 Published by
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The slowdown in house price growth is becoming more pronounced as salary rises fail to keep up with house price increases, making dwellings less affordable
By Nick Wilson

The slowdown in house price growth is becoming more pronounced as salary rises fail to keep up with house price increases, making dwellings less affordable.

After growth in house prices peaked at 35,5% in September and October last year, nominal year-on-year growth of 26,9% in house prices was recorded in March, according to the latest Absa house price index.

SA's biggest home loan lender said the revised year-on-year growth for February was 29%. In real terms, year-on-year growth of 25,7% was recorded in February compared with a revised growth rate of 27,2% in January. The trend of housing becoming less affordable had continued in March this year, Absa said.

The average monthly mortgage repayment on a house in the 80m² to 400m² category, valued at R2,2m or less, had increased 22,8% between March last year and March this year. Over the same period, average salary income had increased less than 10%.

"The affordability of housing will be one of the most important factors (affecting) house price growth in 2005," said Absa.

It said nominal growth in house prices of up to 20% was still projected for the year.

Adrian Saville of Cannon Asset Managers said they believed house prices in some parts of the market were overvalued by 15% to 20% and that any increase in prices above 8% this year was going to "aggravate overvaluation in the market".

However, he said a major force behind the residential property market was falling interest rates.

"That cycle has come to an end and so you would anticipate house prices will start to gravitate back more to fair value," he said.

Property economist Garth Johnson said the fact that house price growth had far exceeded disposable income growth suggested households were willing to make changes to their spending behaviour in order to become home owners.

But Johnson said the slowdown in house price growth should gain momentum in the coming months, as households could not indefinitely absorb increased bond payments.

Business Day

Publisher: Business Day
Source: Inet Bridge

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