Buyers must do their homework

House price growth increased modestly in April, rising to 2% y/y from 0.5% y/y in March, taking the median property loan financed by the bank to R571 000 from R550 000 in February. This growth remains modest in comparison to other indicators that are signalling a stronger turnaround in the appetite for mortgage finance. Notwithstanding this comparison, the median property value is slowly increasing following several months of lethargy around the R550 000 mark. The improved growth rate in April is a combination of healthier demand and supply dynamics. We believe that this growth rate reflects a healthy improvement in line with the current business cycle dynamics, as a steeper acceleration relative to economic activity is deemed risky during the early phases of economic recovery.

A continuation of the current advance in comparison with previous months could see an overall increase in the median house price of around 6.5% in nominal terms. While several risks to the outlook remain, we are confident that easier credit granting criteria and positive real income growth will underpin a constructive growth trajectory in the second half of the year. Lower interest rates in conjunction with consolidation in debt will underpin the affordability of the housing market. Moreover, with non-employment income envisaged to grow by between 6% and 8% this year, the median house price could be biased upward as new investment buying (e.g. buy-to-let) patterns emerge.

Article from: www.realestateweb.co.za