house prices fall — standard bank survey 
02 April 2008

House prices have fallen for the first time in nearly eight years, as higher interest rates and inflation eroded consumer purchasing power, the latest Standard Bank residential property gauge has shown.  In the year to March the bank’s median house price dived 5,2% to R550000 — the first annual fall since a 2,5% decline in June 2000, which was short-lived, economist Sizwe Nxedlana said.

This signalled the end of an unsustainable five-year boom in house prices, which peaked in 2004 and had lagged growth in disposable income since the second quarter of 2006, he said.
“Growth in house prices seemingly ran away from key fundamentals, particularly between 2004 and 2006, adversely affecting affordability.  “The dismal house price growth we are currently experiencing should thus have been anticipated and indicates that we are in the midst of a correction in the housing market.”

SA’s biggest provider of home loans, Absa, said house prices rocketed 300% in nominal terms between the start of 2000 and the end of last year. If inflation is taken into account, they have risen 165% over that period.  Absa will release its March house price index in the next few days. Senior economist Jacques du Toit predicted it will show another slowdown in nominal price growth, which dipped to an annual rate of 8,7% in February, just below inflation measured by CPIX (the consumer price index excluding mortgage costs).

“In real terms, house prices are rising at a rate of virtually zero. It is quite possible that in coming months there will be negative real growth,” he said.
Interest rates have climbed by four percentage points since June 2006, pushing household debt as a ratio of disposable income up to a record 77,6% in the fourth quarter of last year. Debt service costs to disposable income leapt to 10,9%, a seven-year peak.

Tougher lending rules introduced with the National Credit Act in last June have helped curb demand for mortgage grants and advances, which peaked last May.  Reserve Bank data show that in December last year, they had slumped to about R20bn, about half the peak value recorded seven months earlier. Figures due will show whether growth in mortgage advances slowed again last month after subsiding to an annual rate of 24,5% in January, from a peak of 30,9% in October 2006. They constitute more than half of private sector credit, which is still growing at a robust pace, rising 23% in January versus the same month last year.

Nxedlana said growth in new mortgage grants and advances for residential property slowed to a dismal 6,3% last year. This compared with the annual average rise of 26,7% in 2006, 46,2% in 2005 and 52,4% in 2004. “Demand has been on a downward trend since June 2007,” he said.
That coincides with the introduction of the credit act.

Faster economic growth, which amounted to 5% over each of the past four years low inflation and interest rates spurred the boom in demand.  The pace is set to slow to between 3% and 4% this year, while inflation is set to reach 10% this month which would be a new five-year peak.  Absa’s Du Toit said house price growth would recover in the long term, but not to the heady levels seen since 2000.

Mariam Isa, www.businessday.co.za