Gina Schoeman, an Economic Analyst at Standard Bank asks the question: "What has happened to the R500 000 house?"
There was a time when locating a R500 000 mid-range house was not a difficult
task. However, with house prices increasing strongly over the past few years, to
find a mid-range quality house priced at R500 000 is now quite a feat.
House price growth has increased this portion of housing to higher levels and,
although the trend in house price growth in September 2006 was recorded at 6.7%
year-on-year, this still indicates an increase in the nominal prices of housing.
In the search for the house once priced at R500 000, the national market must be
split into the various price bands that exist.
Deeds Office Data and Percentile Bands
In viewing the various segments in South Africa, it is beneficial to review
Deeds Office Data in order to confirm our findings and to observe the growth
rates in different percentile bands. Sourcing Deeds Data, the table below
indicates the various percentile bands and the average bond amounts assigned to
them.
The 8th percentile is attributable to properties that fall within the bottom 15%
of all residential transfers through the Deeds Office. It is clear that this
percentile band experienced an increase in value between 2003 and 2005 from R65,
116 on average in 2003 to R82, 538 in 2005, visibly illustrating the overall
lift in market prices.
In order to gauge the effect of a house priced at R500 000 on average in 2003
and what it would be worth today, it is clear by observing the 80th percentile
that those houses falling in this range three years ago would have been priced
at around this price. When observing the average for 2005, it is clear that this
price has increased on average to approximately R750 000. Attributable to an
overall lift in prices, this growth is reflected in line with the property boom
we experienced over past years.
Currently, with house price growth measured at 2.9% year-on-year, one may expect
that any houses that have increased in value within this 80th percentile from
R500 000 in 2003 to R750 000 in 2005 may remain relatively constant in regards
to the slowdown in house price growth currently being experienced. In addition,
the overall lift in the market over recent years means that houses that are now
priced at R500 000 will have shifted into the 60th percentile.
Market Segment Growth
In response to a powerful emerging middle class, together with an upward
economic mobility from the lower class, the growth in house prices has
consistently moved downward through the various price segments over the years.
The emerging trend of an empowered middle market is now apparent, with the
highest growth from each price segment now residing in this middle price
segment. Although house prices continue to rise, the current slowdown in growth
rates is in response to less supply available, affordability constraints and
unease with regards to interest rates.
The recent rises in the interest rate will substantially change the way in which
the housing market performs from an affordability perspective. The table above
illustrates the change in income required based on the recent interest rate
hike. Furthermore, the change in the repayment on a home loan is shown in the
table below. Both these changes will affect the demand for more affordable
housing and may possibly stimulate a return to the R500 000 house for some.
In conclusion, the number of houses available at the R500 000 mark in 2003 has
dropped significantly in line with increasing house prices. Analysis shows that
the closest matching price for those houses priced at R500 000 three years ago
is approximately R750 000 at current prices.
Using a R500 000 base figure for January 2004, the Standard Bank House Price
Index illustrates the change in this house price if it were sold consistently
every January.