House prices continued to drop in May even though consumer price inflation has risen gradually. In the category of small houses (80 sqm to 140 sqm) prices dropped by 6,4% in nominal terms and by 8,6% in real terms.
The average price of a small home in May was R755 400. For medium-sized houses (141 sqm to 220 sqm) the picture remains as bleak with the average price of just R955 500, down by 1,8% year-on-year (y/y) after being 1,7% lower in April. In real terms prices in this category dropped by 5,7%.
For large houses (221sqm to 400sqm) the real price decline was 2,1% y/y reflecting an average price of R1 487 700. There was nominal price growth in this category of 1,8% y/y in May, slightly lower than the 2,1% y/y in April.
The figures are contained in the latest issue of the Absa House Price Indices and according to senior property analyst, Jacques du Toit, house prices are a reflection of the general state of consumer finances that have had an impact on the residential property market.
“Employment was marginally down in the first quarter of the year with consumer confidence falling over the same period,” he says. “Many consumers still have impaired credit records and there has been no further relief in terms of lower interest rates in the first quarter of the year,” he added.
Du Toit says that these developments contributed to a drop in household mortgage advances of 3,3% in April.
Du Toit says that consumer price inflation is forecast to rise to almost 6% by the end of this year and there are no further interest rate cuts likely. Some local economists are predicting that because of the high inflation levels, the first interest rate hike could come as early as September this year, placing some pressure on battling consumers.
Du Toit points out that the Monetary Policy Committee of the Reserve Bank is expected to be watching these developments closely.
“The current forecast is for interest rates to remain stable until early next year when rates are expected to be hiked. Banks’ prime and variable mortgage interest rates are projected to rise to a level of 11,5% by the end of next year,” Du Toit says.
He points out that rising interest rates will impact on the cost of servicing household debt, including mortgages, and this will put further pressure on household finances and the consumer’s ability to spend and take up credit.
“Nominal house price growth is expected to remain under pressure in the near term with home values set to decline further in real terms on the back of rising consumer price inflation towards the end of the year,” he adds.
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