Since interest rates remain at historically low levels and house prices are starting to stabilise, homeownership is becoming more and more affordable.
This is reflected in some of South Africa’s financial institutions statistics, which indicate that while there has been a small percentage of property value growth over the past 12 months, house prices have in some instances seen a decrease, and have, overall, remained fairly stable. For example, the Standard Bank price index for November indicates a median house price of R581 000, down 4.8% year-on-year. Absa’s October average house prices show that while the average price of small homes is up 9.8% to R732 000 and medium homes have seen a 3.5% year-on-year increase to R955 200, large homes reflect a 0.4% decrease to R1,4m. First National Banks November figures also show a slight year-on-year increase of 3.8%, with the average house price sitting at R787 530.Furthermore, the National Credit Regulators’ Credit Bureau Monitor third quarter report released in September, indicates that of the 18,35-million credit-active consumers, 53.7% were classified as in good standing, an improvement from the previous quarter.
The number of consumers with impaired records decreased to 8,49-million which indicates an improvement in the credit records of 97 000 consumers quarter-on-quarter. In terms of accounts, the report also shows that the number of impaired accounts decreased by 505 000, to 16,55-million, an improvement of 0.4% over the previous quarter.These slowly decreasing consumer debt levels, along with the numerous other favourable conditions, are beginning to draw home buyers back into the market - low interest rates, lower prices and high volumes of available stock is making the market very tempting to those who qualify for mortgages and those with disposable cash to invest.According to First National Bank’s Third Quarter Residential Property Review, affordability levels have gone back to those reported in 2004. There are two traditional measures that are used to determine the affordability of property. The first of the two measures of affordability - the average house price versus average employee remuneration - receded since its early-2008 peak, back to a level more-or-less equal to those reported in the second half of 2004. However, this does not indicate that price levels are back to those from 2004, since the average wage has inflated substantially since then.The second measure – the instalment repayment value on a 100% mortgage on an average-priced home versus the average employee remuneration ratio - has declined sharply from its early-2008 peak, due to a series of interest rate cuts since late-2008, along with price decline or low price inflation since then. This index, too, is back to levels of affordability last seen in 2004.
These results reflect a few years of improvement in the affordability of residential housing, however, they do not tell the full story, as high levels of job losses have meant that there are less average wage earners in a position to buy a property compared with a few years ago. But the question remains, if we’re back at 2004 affordability levels, then why aren’t more people buying houses? Compared to 2004, households currently carry an exceptionally high level of debt, and there are spending backlogs that are currently being addressed.
Also, the results in the report refer to the average wage earner, and there are currently less of these around as an increasingly high labour cost in a slow growth economy has spurned major job losses.The weak demand relative to supply has resulted in an unbalanced market, and either demand has to catch up, supply has to drop or prices have to fall. Demand will eventually catch up as the economy stabilises, and in turn supply will slow down, but for now, I believe that prices will drop marginally over the next year, which will serve to balance the market scales and give the economy time to fully recover. After this ‘stabilisation period’, it is predicted that annual prices below 10% should continue for a few years thereafter - so now is the time to invest, at the beginning of the predicted property upswing.