The Standard Bank House Price Index (HPI) rose to 6.7% y/y in March from a downwardly revised 5.4% y/y (originally 6.2% y/y) in February.
The HPI is comprised both of freehold and sectional title properties. Since the financial crisis until the start of Q2:2015, the bank found sectional title property prices underperformed freehold property prices. This relationship reversed in Q2:15, possibly due, it says, to a slowdown in the supply of flats and townhouses in 2015, according to Stats SA’s annual buildings completed data.
However, in March, for the first time since April 2015, the freehold property price index outperformed and rose 8.5% y/y, up from 7.1% y/y in February. Sectional titles also recorded strong growth, rising to 8.1% y/y in March from 7.7% y/y in February.
Mortgage advances have continued their resilient growth against a more challenging macro-economic backdrop, the bank reports. Mortgages ticked up 4.7% y/y in February from 4.5% y/y in January.
“We note that more than 90% of mortgages are up to date, which compares favourably to other categories of consumer credit where at least a quarter of loans are in arrears,” the bank says. “From an affordability perspective we remain concerned about the demand for houses and the supply of mortgages in 2016; higher taxes coupled with our expectation of net job losses and flat to slightly negative real wage growth in 2016, should see disposable income growth continue to slow, after averaging growth of 7.3% in 2014 and 5.7% in 2015. Early 2016 sales volumes already show a decline in purchasing activity for both freehold and sectional title properties.
“We disaggregate demand for houses by first time buyers (which we estimate accounts for around 42% of total) to investigate the effect of the downward phase of the business cycle on demand for housing and supply of mortgages (we assume first time buyers are more sensitive to the macroeconomic environment).
“We estimate that around 46% of mortgages given to first time buyers are extended to those earning between R16,418 and R33,333 per month, and 75% of mortgages to first time buyers are to those who earn between R16,418 and R57,333 per month. Salaries and wages are the main source of revenue for this income group, accounting for almost 70% and we expect job losses, job insecurity as well as reduced levels of consumer confidence to affect demand for and performance of mortgages.
Looking ahead, in a rising interest rate cycle – although the March HPI print surprised to the upside – at trends for disposable income and consumer confidence, the bank expects property prices will come under pressure in coming months, as financial conditions continue to tighten.
“Interestingly, this upside surprise is in keeping with the historical relationship between interest rates and the Standard Bank HPI, which shows that while this relationship is generally negative, at the start of a rate hiking cycles it turns positive and house prices rise with rates; at some point however, interest rates become prohibitive and the more general negative relationship takes over.”