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SA house price growth slips, but still strong   Article Date :17 Jan 2006 Comments on Absa House Price Index Although South African house price growth was on a declining trend during the course of 2005, the average price performance was still strong compared with 2004, according to commercial bank Absa. The bank reports in its Absa House Price Index, released in Johannesburg today, that nominal house price growth declined from a level of 30,8% year-on-year in January 2005 to 14,7% in December (15,7% in November). "This brought the average growth in house prices in the middle segment of the market (see note at end of copy) to 21,9% in 2005 (32,2% in 2004). As a result, the average house price came to about R700 200 in 2005 (R574 200 in 2004), with prices averaging R738 900 in December last year. In real terms, year-on-year growth of 11,9% was recorded in November compared with a revised growth rate of 12,3% in October, based on the headline consumer price index. The average real year-on-year growth in house prices during January to November 2005 was 18,7%, which is based on a headline CPI inflation rate of 3,4% on average during this period. On a month-on-month basis, the bank says nominal growth in house prices came to 0,7% in December last year compared with a revised growth rate of 0,9% in November. Nominal month-on-month growth has been on a declining trend since the 3% recorded in January 2004. With CPIX inflation currently well under control and a much stronger rand exchange rate since late last year, interest rates are expected to remain at current levels throughout 2006. However, the oil price edged up to above $60/barrel again, which may lead to inflationary pressures if the rand exchange rate depreciates significantly from its current level. Against this background, lower house price growth of between 10% and 12% is projected by the bank in 2006, mainly driven by the combined effect of the affordability of housing and interest rates remaining low over the next twelve months. In view of this, mortgage advances growth is forecast to remain relatively strong during the course of this year, although growth will probably be lower than the around 27% recorded last year. As a result, the ratio of household debt to disposable income, which was at an all-time high of 63,4% in the third quarter of last year, is expected to rise further to a level of about 67% by the end of 2006. Such a level of household debt is not regarded as a crisis, as interest rates are projected to remain low over the next twelve months. Real household disposable income growth of almost 6% is forecast for 2006, with households in general not finding it too difficult to handle a debt-to-income ratio of almost 70% by late 2006/early 2007. Editors Note: The Absa House Price Index is based on the total purchase price of houses in the 80m²- 400m² size category, valued at R2,2 million or less in 2004, in respect of which loan applications were approved by Absa. CLICK HERE TO RETURN TO THE MAIN NEWS PAGE