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A Mere Million Won't Suffice
"Based on a home loan rate of 12,5% the monthly payments on the average house for which Absa grants a 100% home loan over 20 years, is now R10 250." The gross monthly income required for such a loan, if the monthly payment is no more than 30% of the income, is R34 167.
The monthly payment on the same house which cost R781 335 last year, was R7 801 at a bond interest rate of 10,5%. To have qualified for such a bond, the buyer would have needed a gross monthly income of R26 002. "This means that the income required to afford a house has grown by 31,4% per year."
According to Du Toit, these factors will put further pressure on the affordability of houses for South Africans entering the housing market for the first time.
In his opinion the house price growth year on year will not drop below 10% this year. The average nominal growth for the first quarter of this year was 15,5%. For January, the year on year growth was 15,5%, for February it was 15,6% and for March it was 15,5%.
In the near future, he believes that price growth which is currently moving sideways, could even flatten out a bit, especially in the light of upward pressure on inflation in the coming months.
Factors playing a role in inflation pressure include strong growth in credit supply, increasing household debt and debt service costs, and the possibility that interest rates may be adjusted upward over the short term.
On macro economic level, he also points to the volatility of international oil prices, and drought which will push food price growth upward in the near future. "These factors are less than good news for inflation, especially in the light of the fact that food represents 25,7% of the total VPIX index," he says.
The Reserve Bank's monetary policy committee will meet next week to decide about interest rates. According to Du Toit, there is a chance that interest rates may be increased further. – Elma Kloppers
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Posted on Thursday, April 19, 2007 (Archive on Thursday, May 31, 2007)
Posted by hayleym Contributed by hayleym
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