The drivers of house prices revisited
South Africa - Rode
The normal short-term factors that drive house-price inflation are economic growth (real growth in disposable household income) and interest rates, as both affect affordability. Economic growth also tends to create new jobs, which boosts the demand for housing, and if the supply side (new developments) cannot keep up, prices accelerate. In a booming economy, this lag time is a real problem as the gestation period of new residential estates is about four years.
A long-term driver is construction costs. The reason for this is the substitution principle. If the prices of existing houses rise to levels where it is cheaper to build new, the potential buyer might choose the new build. Thus, the cost to build new keeps the prices of existing stock in check.
Exceptional factors that could affect house prices are migration and the insistence by some municipalities on inclusionary (low-cost) housing in higher-priced developments. These factors are wildcards and are not contained in our forecasting models:
What is your home worth?
South Africa - Property360
Owners, buyers and estate agents may have fundamentally different ideas about what a property will fetch.
Property values can be a contentious issue, particularly for homeowners who may have different perceptions of value to property professionals or even buyers. Sometimes this difference is due to the emotional connections they have to their homes.
At other times it is a misunderstanding about what factors influence a property’s value. Property trends and “fashions” also have a strong impact on what makes one property more valuable than another, so value – and selling price – can be dependent on the times.
This means factors of supply and demand are probably the most accurate gauge to determine a property’s worth, although property professionals note that not even this is 100% reliable as buyers themselves will place different values on different property elements.
Credit and mortgage advances
South Africa - Absa
Uptick in household credit and mortgage balances growth
Outstanding credit balances in the South African household sector (R1 699,2 billion) increased by 6,7% year-on-year (y/y) up to the end of August 2019, with growth accelerating from 6,3% y/y at end-July. A cut of 25 basis points in prime lending and variable mortgage interest rates to a level of 10% per annum in July has most likely contributed to the uptick in the growth in household credit balances and most of its components.
Household secured credit balances (R1 283,6 billion and 75,5% of total household credit balances), which includes mortgage, leasing and instalment sales balances, showed growth of 5,3% y/y in the 8-month period up to end-August, up from 5,1% y/y at end July. Mortgage balances growth was also higher at end-August from end-July but growth in instalment sales balances (R288,6 billion and 22,5% of total household secured credit balances) slowed down somewhat further to 6,8% y/y at end-August from a recent peak of 8,3% y/y at end-April this year.
Credit and mortgage advances (Aug 2019)