Home prices still falling

Residential house prices in South Africa grew slightly in June compared to a year earlier, according to latest results recorded by bond originator ooba. When considering the impact of inflation (4.6 percent), real house prices fell by 3.6 percent. This slight nominal increase follows two months of nominal year-on-year decreases in local house prices.

The June oobarometer price index reveals that the average house price rose one percent year-on-year (-3.6 percent in real terms) to R845 725 from
R837 599 a year earlier. The price index also recorded nominal month-on-month price growth of 0.5 percent. According to other statistics tracked by ooba, growth in the average purchase price amongst first time buyers also showed a slight increase with year-on-year growth of 1.1 percent to R618 084 in June 2011 from R611 611 a year earlier.

Saul Geffen, CEO of ooba, says that further positive news is that the average deposit as a percentage of purchase price decreased by 25.1 percent year-on-year to R108 268, equivalent to an average deposit of 12.8 percent of the purchase price. In addition, the average approved bond size also showed a year-on-year increase of 6.1 percent to R737 457 from R694 759 a year earlier. Latest statistics also indicate that ooba’s bond applications for June increased by 51.3 percent compared to the prior year compared with a 47.1 percent year-on-year increase in applications in May and a 48.5 percent increase in April.

"We have recorded consistent month-on-month increases in bond applications since the beginning of 2011." The company also revealed that the value of approved bonds reached a three year high in June 2011.

"We have experienced a growth of 51.9 percent in the value of approved home loans in the last quarter in comparison to same period in 2010. However, the volume of approved loans in June was still only 25 percent of the approved loans recorded at the peak of the market in May 2007."

Geffen attributes the rise in approved bonds and applications to the company’s increased market share as well as organic growth from the improved property market and lending conditions.

He says the improved property market conditions are a direct result of the current low interest rate environment, following a reduction in interest rates of 650 basis points since 2008, which has improved affordability and reduced the cost of servicing a bond significantly. "The record low interest rates, coupled with subdued property price inflation, increased bank approval rates and lower deposit requirements has resulted in an influx of applications by potential homeowners."

He says that the major lenders have also continued to relax their lending criteria, which has positively impacted on the effective approval rate — the overall percentage approved once ooba’s application process is complete. "The effective approval rate has increased to 63.9 percent in June 2011, up from the lowest effective approval rate of 55.6 percent recorded in May 2010. However, the effective approval rate is still well below ooba’s peak approval rate of 81.26 percent recorded in May 2007."

Article from: www.iafrica.com

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