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House price growth declined further in April

05 May 2006 Jacques du Toit ABSA Senior Economist

According to the latest Absa House Price Index, nominal house price growth of 12,8% year-on-year was recorded in April 2006 compared with a growth rate of 13,7% in March. This was the lowest year-on-year growth since January 2000 when it was 11,8% and brought the average price of a house in the middle segment of the market to about R770 000 in April. The average nominal year-on-year growth in house prices in the first four months of 2006 was 14%.

In real terms, year-on-year growth of 10% was recorded in March compared with a growth rate of 10,2% in February, based on the headline consumer price index. The average real year-on-year growth in house prices came to 10,3% in the first three months of 2006.

On a month-on-month basis, nominal growth in house prices was down to 0,5% in April compared with a growth rate of 0,7% in March. Real month-on-month growth of only 0,2% was recorded in March this year.

Based on the current mortgage interest rate of 10,5% and the average price of a house in April this year, the monthly mortgage repayment and the gross monthly income required in order to afford a 100% mortgage, were 11,1% higher in the past month compared with April 2005 when the rise was 20,1%. Although housing is, in general, still less affordable than a year ago according to this analysis, the rate of deterioration has decelerated significantly during the course of the past twelve months.

The international price of oil is currently well above $70/barrel, while the rand is relatively strong against the major international currencies, largely driven by high precious metal prices. CPIX inflation dropped to 3,8% in March from 4,5% in February, and is forecast to remain within the inflation target range of 3%-6% in 2006. The Reserve Bank decided to keep interest rates unchanged at the April MPC meeting, but mentioned rising international oil prices and strong consumer demand as the main threats to the inflation outlook.

The significant cut in transfer duty on property, announced in the Budget in February, did not lead to stronger growth in house prices during March and April, although volumes did appear to have increased over this period. Average nominal house price growth of about 12% is still projected for 2006.

This article was taken from : ABSA Property Trends

Explanatory notes:
The Absa House Price Index is based on the total purchase price of houses in the 80m- 400m size category, valued at R2,2 million or less in 2004 (including improvements), in respect of which loan applications were approved by Absa.
Prices are smoothed in an attempt to exclude the distorting effect of seasonal factors and outliers in the data. As a result, the most recent index figures may differ materially from previously published figures.

Disclaimer:
The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Absa Group Limited and/or the authors of the material.

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