Absa Housing Review Q2 2011

04 May.

Housing Review Summary.

• Growth in South Africa’s real gross domestic product rebounded to a seasonally adjusted annualised rate of 4,4% in the fourth quarter of 2010 after growth slowed down to below 3% in the preceding two quarters on the back of industrial action in some sectors of the economy. After growing by 2,8% in 2010, the economy is forecast to expand by a real 3,8% in 2011, supported by global growth and increased domestic demand.  
• Household finances improved gradually during the course of 2010. Some growth occurred in employment in the final quarter of the year compared with the third quarter. Real household consumption expenditure rose by more than 5% in the second half of the year on the back of real disposable income also increasing by above 5% in the same period. The ratio of household debt to disposable income dropped to just below 78% in the fourth quarter of last year, while the cost of servicing debt declined to around 7% of disposable income as a result of the lower debt ratio and a further decline in interest rates in the quarter. However, many consumers are still battling with impaired credit records as a result of repayment defaults on debt in the aftermath of the economic recession of 2009, hampering their ability to take up credit. Against this background growth in household credit extension remained in single digits in the first quarter of 2011.
• House price growth in the various segments of the market, as measured by Absa, slowed down further in nominal terms in the first quarter of 2011, while in real terms, i.e. after adjustment for consumer price inflation, prices declined on a year-on-year basis in some categories. The slower pace in year-on-year house price growth in the first three months of the year is related to the base effect of price movements in the corresponding period in 2010, while factors related to household finances are also believed to have contributed to the declining trend in price growth in the first quarter.
• At geographical level house price trends varied in the provinces, metropolitan areas and the major coastal regions on a nominal as well as on a real basis, with price growth occurring on an annual as well as a quarterly basis in some regions in the first quarter of 2011. However, price declines were recorded in a number of regions in the past quarter.
• The affordability of housing continued to improve up to the end of 2010, driven by slowing house price growth, lower interest rates and rising household income. In the fourth quarter of last year the ratio of house prices to disposable income was at its lowest level since mid-2004, while the ratio of mortgage repayments to disposable income was at a record low in the quarter.
• On the back of recent house price trends and expectations with regard to inflation, interest rates and consumer finances, nominal house price growth of between 1% and 1,5% is projected for 2011. Taking cognisance of this forecast and a projected average consumer price inflation rate of 5% this year, house prices are set to decline by between 3,5% and 4% in real terms in 2011.

Source: Absa Property Research