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13/03/2008 10:54 AM - (SA) 'Buying an average house has become less affordable' 14/03/08
Absa'as latest housing figures show that house prices rose 8,7% to R969 800 in the 12 months to February 2008. Fin24's R40 000 per month affordability calculation is based on the traditional mortgage repayment ratio of 30% of gross household income. The calculation assumes that the house is financed with a 100% mortgage over 20 years at the current prime interest rate of 14,5%. That translates into a monthly mortgage repayment of R12 413 (29,6% of R42 000). Two years ago, South African homebuyers were paying 60% less in monthly mortgage repayments for the average-priced, middle-sized house. Absa says that in February 2006, middle-sized houses cost an average R771 135. At the then prime interest rate of 10,5% the monthly repayment on a 100% mortgage amounted to R7 699. At the time South African families needed a monthly income of "only" R25 500 to qualify for a mortgage loan to buy the average priced house - R14 500/month less than what's needed to buy the average priced home today. These calculations clearly illustrate just how much less affordable housing has become. Admittedly, the introduction of the National Credit Act in June 2007 means that banks no longer use the 30% flat rate as the only criteria to determine how much homebuyers can borrow. Disposable income now also comes into play. Even so, it remains a useful benchmark to determine how affordability levels have changed. It's not only the affordability of middle-priced houses that have deteriorated because the picture looks equally dim for top-end buyers. According to Absa, prices of luxury houses valued at between R2,7-million and R9,9-million rose 8.1% to R4,2-million in 2007. This amounts to a mortgage repayment of close to R54 000/month (at prime of 14,5%). Local households in this bracket now need to earn a staggering R180 000/month to buy the average priced, luxury house with a 100% mortgage. Absa Home Loans senior property analyst Jacques du Toit says affordability levels will deteriorate even further in 2008 as the effect of higher interest rates and higher inflation continues to filter through to consumers. In addition, houses are likely to become even more expensive. Du Toit says that although the rate at which house prices grow should continue to slow, it's unlikely that house prices will actually drop. He expects house prices to rise an average 7,8% in 2008 (14,5% in 2007). (Fin24/Joan Muller)
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