New, existing home prices: Gap widens
The price difference between new and existing houses was the largest in six years during second quarter 2009.

This means that a potential buyer looking to buy an average new house will be paying R288,400 more than he would for an average existing house.

This big difference can be ascribed to the fact that prices of existing houses have been falling while the price of new ones are still growing, even though the increase in building costs decelerated recently.

According to Absa's latest residential quarterly report the average price of a new house increased by a nominal 11,7% year-on-year (y/y) in the second quarter to about R1,205,800. At the same time the average price of an existing house dipped by a nominal 3,9% y/y to about R917,400.

Jacques du Toit, senior property analyst at Absa's home loans division, says this points to a nominal price difference of nearly 24% between new and existing houses in the second quarter. "This is the biggest price difference since the fourth quarter of 2003 and is an indication that existing houses are fairly cheap right now."

The costs involved in building a house increased by a nominal 6,1% y/y in the second quarter and was under the average inflation rate of 7,8% y/y during this period.

Du Toit says there was a time when there was no or little difference between the price of new and existing houses. The most recent example was in 2007, when nominal house prices still rose by 14,5 y/y.

He says it probably has to do with the supply and demand being more or less on par back then. The housing market is now characterised by a relatively high supply of existing houses and a weaker demand.

He says developers is under pressure and can't just lower their prices for new houses due to their input costs. "Although the growth in building costs has decelerated, it is still rising and it has probably hurt their profit margins."

He reckons it is now a good time to buy a house, permitted that finance it available.

He expects the lag-effect of lowered interest rates and an economic recovery later this year to lead to a gradual improvement in the housing market early next year. – Elma Kloppers, Sake24

Article by: www.sapropertyinvestor.co.za