Avg SA house needs R29k/month
Johannesburg - The fact that SA families now need to earn a monthly household income of R29 021 to be able to afford the average priced, mid-sized home clearly illustrates how much less affordable South Africa's residential property market has become over the past few years.
The gross monthly qualifying income to afford the average priced home is set to rise even further over the next few months on the back of possible further interest rate hikes.
Three years ago SA households needed a monthly income of roughly R10k/month or less to qualify for a 100% mortgage to buy the average priced home. That is despite interest rates being 3.5% higher at the time than the current prime rate of 11.5%.
These affordability calculations from Absa are based on the bank's latest house price index that puts average house prices at R816k in August (up 13.6% y-o-y).
Expensive to buy property
Absa's affordability figures assume that the house is financed with a 100% bond over 20 years at the current prime rate of 11.5% and that homebuyers are allowed to borrow an amount where monthly repayments will not exceed 30% of gross monthly income.
That translates into a monthly bond repayment of R8 706 on a R816 401 mortgage loan, about 50% more than the monthly bond repayment that buyers had to pay in August 2003 on the average, mid-sized house that was then priced at R442.5k. The repayment on a bond of R442.5k at the then prime rate of 15% was R5 827 per month.
Absa senior economist Jacques du Toit says although house price growth continues to slow, affordability calculations confirm that the rapid rise in house prices over the past few years have made it increasingly expensive to buy property in SA.
Du Toit expects at least another two half percentage point rises by December. But he says further rate hikes in the first half of 2007 cannot be ruled out as the SA Reserve Bank's Monetary Policy Committee (MPC) is expected to continue stepping up rates until the effect of higher rates is visible in the economy.
Demand fro houses drop
Meanwhile, Standard Bank economist Elna Moolman says in her latest property overview that the onslaught on SA consumers' finances from record-high petrol prices, soaring food prices and rising interest rates is no doubt constraining households' ability to pay increasingly high prices for houses.
Moolman says this will continue to lead to softer housing demand that should see house price growth slow to very low, single-digit territory by year-end.
News source: www.news24.co.za
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