Homes less affordable despite slow house price growth - economist


Cape Town - There has been a slight deterioration in residential affordability in the first two quarters of 2017, despite relatively slow average house price growth, the quarterly FNB Housing affordability ratios show.

Household sector disposable incomes are battling to outpace even modest house price growth, according to John Loos, household and property sector strategist at FNB.

He therefore sees the slight affordability deteriorations as a sign of the stagnant economic phase of the economic super-cycle in which SA finds itself.

In the view of Loos, SA’s low interest rates remain key to sustaining current relatively high real house price levels (by SA’s historic standards).

For both credit-dependent as well as cash home buyers, home affordability has deteriorated very slightly in the first two quarters of 2017, according to the latest two FNB Home Affordability Indices.

Due to no interest rate changes in the first half of 2017, both the Average House Price/Per Capita Disposable Income ratio Index and the Instalment Value on a new 100% Bond on the Average Priced House/Per Capita Disposable Income Ratio Index rose - therefore deteriorated - by a slight +0.6% in the second quarter of 2017.

This followed on a +0.3% revised increase in the first quarter - the second consecutive quarter of increase (deterioration).

Average house price growth

"On a quarter-on-quarter (q/q) basis, average house price growth rates of 1.3% and 1.8%, for the first and second quarter of 2017 respectively, outstripped per capita disposable income growth of 1% and 1.2% for the same two quarters respectively," said Loos.

In his view, the weak per capita disposable income q/q growth rates suggest the possibility that year-on-year growth in per capita disposable income could slow into low single digits.

"This would require even slower house price growth, or alternatively house price decline, if affordability were to improve noticeably from here on," said Loos.

"We still do expect average house price inflation to underperform nominal per capita disposable income growth, given the likelihood of very weak household sector confidence levels prevailing, and thus anticipate gradual home affordability improvement over the coming years."

He said the most recent affordability index readings point to just how financially challenging the economic environment of SA is becoming. Even very slow single-digit house price growth is, therefore, not necessarily leading to affordability improvements, as economic growth stagnates and various household-related taxes and tariffs rise.

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