South African home values increased further in June 2010, but there are early indications that year-on-year price growth may peak in the near future, according to data by Absa, SA's biggest mortgage lender.
The average nominal value of small, medium and large houses for which Absa approved mortgage finance, increased by a weighted 14.8 percent year-on-year (y/y) in June, which brought the average price of a middle-segment house to about R1.083 million.
And Jacques du Toit, senior property analyst at Absa Home Loans, does not expect interest rates to provide no further stimulus to the residential property market.
In May this year nominal home values in the middle segment of the market increased by a revised 14.7 percent y/y (15.2percent).
In real terms, for example after adjustment for the effect of inflation, the average value of middle-segment homes was up by 9.7 percent y/y in May (up 8.5 percent y/y in April), which was influenced by a further slowdown in consumer price inflation to 4.6 percent y/y from 4.8 percent y/y in April.
In the category for small houses (80 squares metres -140 squares metres), the average nominal value of homes increased further at a rate of 33.6 percent y/y in June this year, after rising by a revised 29.7 percent y/y (29.2 percent) in May.
The average nominal value of small homes came to a level of about R868 600 in June. The average real value was up by 24 percent y/y in May, after rising by 18.8 percent y/y in April.
Absa says the affordability of housing was to some extent adversely influenced by trends in the growth in house prices and households' disposable income in the latter half of 2009 and in early 2010.
This is believed to have contributed to buyers focusing more on the category for smaller housing in recent times, impacting price trends in this segment of the market.
The average nominal value of medium-sized houses (141 square metres -220 square metres) was up by 9.7 percent y/y in June 2010, after rising by a revised 8.6 percent y/y in May. The average nominal value of a home in this segment was around R1 million in June.
In real terms the average value of a medium-sized house increased by 3.9 percent y/y in May (up 2.3 percent y/y in April).
Year-on-year growth in the average value of large houses (221 square metres - 400 square metres) slowed down to a nominal 6 percent in June this year, after an annual growth rate of 6.3 percent was recorded in May.
This moderation in price growth in the large category can be ascribed to base effects, with year-on-year price deflation in the large segment slowing down rapidly up to June last year before price growth resumed again in July.
The average nominal value of a large house came to R1 469 200 in June his year.
In real terms the average value of a home in the large segment was up by 1.6 percent y/y in May, after rising by 1.5 percent y/y in April.
Consumer price inflation is forecast to bottom in the third quarter of 2010, rising again in the final quarter of the year on the back of inflationary pressures, according to Du Toit.
Double-digit administered price inflation and wide-spread wage hikes of well above inflation are regarded as the main risks to the inflation outlook over the short to medium term, he said.
"Based on these expectations in respect of inflation, interest rates are forecast to remain at current levels in the rest of the year, providing no further stimulus to the residential property market," he said. - I-Net Bridge