JOHANNESBURG - The slight deterioration in residential property affordability in the first two
quarters of this year despite relatively slow average
house price growth was expected to be short lived, according to FNB.
John Loos, a household and property sector strategist at FNB Home Loans, said this was because interest rate cutting commenced in the third quarter and the recent small acceleration in house price growth was not expected to be sustained.
Loos said housing affordability improvements proved to be difficult to achieve.
While average house price growth on a quarter-on-quarter basis was at pedestrian low single digit rates, it was outpaced by anaemic per capita disposable income growth in the first two quarters of this year, he said.
Loos said this had led to a slight further quarterly deterioration in the two key FNB housing affordability measures: the average house price/per capita income ratio index and the bond instalment value on the average house price/per capita income ratio index.
Loos said both these indices also increased in the first quarter of this year.
FNB’s average house price/per capita disposable income ratio index, after four consecutive quarters of improvement last year, deteriorated by a revised +0.3% in the first quarter of this this year and by +0.6% in the second quarter.
The bank’s average priced house/per capita disposable income ratio index deteriorated by the same magnitude in the first half of this year.
Loos said the slight deterioration in home affordability may appear a little strange given the 5% year-on-year growth in per capita disposable income in the second quarter, higher than average house price growth of 3.2% in the same period.
However, Loos said quarter-on-quarter average house price growth of 1.3% in the first quarter and 1.8% in the second quarter outstripped per capita disposable income growth of 1% in the first quarter and 1.2% in the second quarter.
Loos said the most recent affordability index readings pointed to how financially challenging the economic environment in South Africa was becoming, with even very slow low single digit house price growth not necessarily leading to affordability improvements as economic growth stagnated and various household related taxes and tariffs rose.
He said the electricity affordability component of the municipal rates and tariffs/per capita disposable income index was the most troublesome and had deteriorated by escalating by a massive 86.99% since the beginning of 2008 on the back of major multi-year Eskom tariff hikes.
Loos said recent reports were that the electricity regulator needed to consider an Eskom application for a further 20% tariff hike next year, resulting in a resumption of above average inflation rates and tariff hikes.
He added that the municipal rates and tariffs/per capita disposable income index had deteriorated by 33.29% from the beginning of 2008 and the second quarter of this year.
Loos said that compared to the index for electricity, the water and non electricity tariff/per capita disposable income index had deteriorated by a more moderate 14.78% from 2008 until the second quarter of this year, while the home maintenance and repairs/per capita disposable income index had declined 13.4% over this period.
“Pricing weakness in the maintenance and repairs market is possibly due to a partial ‘crowding out’ of this economic sector by municipalities and utilities with their extreme tax/tariff hikes,” he said.