House prices may be levelling off, says Standard Bank unit

Pretoria - Data collected from the deeds office indicated that housing prices might be levelling off, according to Standard Bank's group economics division.

However, in report released yesterday the bank warned that the data were often revised substantially and the slowdown needed to be confirmed by other reports.

Despite this apparent slowdown, the residential property market continued to be buoyant, supported by healthy consumer fundamentals and relatively low interest rates, it said.

Household income was expected to increase over the next two years, supporting property prices.

The bank said an index comparing the prices of new and existing houses clearly showed that the prices the former had increased much faster since last year than the price of new houses.

The prices for houses whose mortgages were financed by Standard Bank seemed to follow the national trend, reflecting a slowdown in both nominal and real terms in recent months.

It added that South Africa's household debt-to-income ratio was still relatively low, despite a rise since the end of 2002, which meant households still had scope to increase their debt and finance more expensive houses.

"This is echoed by indices of housing affordability, which are still low relative to historical values ... the national affordability index is still relatively low compared with that for most of the 1990s.

"The deterioration since late 2003 can mainly be ascribed to soaring house prices. However, the interest rate cuts since mid-2003 have clearly mitigated the impact of rising house prices on affordability," it said.

"Low inflation and interest rates are two of the factors supporting a robust economy, which is expected to continue accelerating over the next two years. Economic growth is forecast to increase from 1.9 percent last year to 2.7 percent in 2004 and 3.2 percent in 2005.

"Consequently, household income is also expected to increase over the next two years, all of which will continue to support property prices," it said.

Article by: Roy Cokayne - www.busrep.co.za