SA Housing Review - ABSA Summary of the First Quarter 2011

• The South African economy recovered in 2010 after the recession of 2009, supported by the global recovery, growing domestic demand, and low inflation and interest rates. Real GDP growth of just below 4% is forecast for 2011.
• Despite the positive effect of declining inflation and interest rates in 2010, the household sector was plagued by continued job losses in most sectors of the economy up to late last year, while the ratio of household debt to disposable remained high at just below 79%.
• House prices continued to rise in 2010 after bottoming in mid-2009, but last year was a tale of two halves, with both nominal and real price growth in the second half of the year being significantly lower in the middle segment of the market compared with the first six months of the year.
• In 2010 the average nominal price of affordable houses was 2,6% higher at a level of R299 100, while declining by 1,6% in real terms. 2009 saw nominal price growth of 2,8% in this category of housing, with prices declining by a real 4,1%.
• House prices in the middle segment of the market increased by 6,8% in nominal terms in 2010, which was markedly better than the marginal decline of 0,3% that occurred in 2009. The average price of a house in this category came to a level of about R1 008 500 in 2010. In real terms middle-segment house prices were 2,4% higher last year compared with 2009 when prices dropped by a real 6,9%.
• In the luxury segment house prices were only a nominal 1,3% higher in 2010 than in 2009, to a reach level of just more than R4,5 million. The average real price of luxury homes was down by 2,9% in 2010 after declining by 5,9% in 2009.
• At a regional level house price growth occurred across all provinces, metropolitan areas and the major coastal regions in nominal terms, while in some regions some real price declines were recorded in 2010 compared with 2009.
• The affordability of housing improved further up to late 2010 on the back of slowing house price growth, declining interest rates and rising household income. This is based on trends in the ratios of house prices and mortgage repayments to household disposable income.
• Taking account of recent trends in house prices, as well as expectations with regard to the economy, nominal price growth of around 1,5% is forecast for 2011. Based on this forecast and a projected average consumer price inflation rate of between 4,5% and 5% this year, house prices are set to decline in real terms in 2011, after rising by 2,4% in 2010.
• Projections of a growing economy, some increase in employment, household disposable income growth, and low interest rates, are factors expected to support the residential property market in 2011.

Courtesy: Jacques du Toit Senior Property Analyst ABSA Home Loans

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