Cape Town - Affordability and mortgage finance are becoming increasingly important for prospective property buyers, according to Jacques du Toit, property analyst at Absa Home Loans.
"Current trends in house prices are believed to be the result of a fair amount of financial pressure experienced by homebuyers on the back of tough macro-economic conditions," he said upon the release of the latest Absa House Price Index on Thursday.
The Absa house price indices are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes.
In May year-on-year (y/y) growth in the average nominal value of middle-segment homes appear to have slowed down somewhat compared to April. Y/y nominal price growth of 5.7% was recorded in middle-segment housing in May, slightly down from 6.1% in April. Year-to-date price growth up to May came to about 6% y/y.
In real terms - after adjustment for inflation - house price growth remained around the zero level up to April. Du Toit added that some negligent real price deflation of 0.1% y/y was evident in April on the back of a consumer price inflation rate of 6.2% y/y in the month.
"Real price trends are important from a property investment perspective, as investors would want to determine if their investment is beating inflation," explained Du Toit.
According to the May index, the average nominal value of homes in each of the middle-segment categories was R947 000 for small homes (80m²-140m²), R1.282m for medium-sized homes (141m²-220 m²) and R2.010m for large homes (221m²-400m²).
Du Toit cautioned that current trends as well as prospects for the SA economy and household finances will remain important factors in the performance of the residential property market, and property price growth in particular.
The economy contracted by a real 1.2% quarter-on-quarter and 0.2% y/y - measured by production - in the first three months of 2016. Du Toit pointed out that this has increased the risk of a recession - that is, two consecutive quarters of a contraction in gross domestic product (GDP).
"Continued inflationary pressures and higher interest rates towards year-end will further erode consumers’ purchasing power, with resultant low consumer confidence and subdued growth in consumption expenditure and credit extension," said Du Toit.
"Against this background consumer credit-risk profiles and financial vulnerability may come under further pressure, which will impact credit providers’ risk appetites and lending criteria."
Du Toit, therefore, expects house price growth to slow down further from current levels towards the end of the year.
"Nominal price growth is forecast at around 5% for the full year, with some real price deflation of about 2% expected on the back of a projected consumer price inflation rate of almost 7% this year," he said.