Houses for sale in the economy segment show the highest growth

Rising electricity and water rates, as well as property taxes and fees, are fueling demand for homes for sale in the smaller, more affordable segments, the latest statistics show.

The Absa House Price Index for May shows continued strong growth in the average prices of houses for sale in the most affordable segment, with small houses (80-140 m²) achieving 29.2% price growth year with year. These numbers are based on the purchase price of Absa-approved mortgage loans.

The growth in the small segment is significantly higher than the growth of the prices of houses for sale in the medium segments (141-220m²), with a growth of 9%, and large (221-400m²), with a growth of 6, 4%, Absa says.

While housing affordability has improved significantly in the last two years due to lower home prices and interest rates during this time, this trend appears to have changed by the end of 2009, says Absa. The relationship between house prices and mortgage repayments on new loans and household disposable income showed a slight increase at the end of last year, while increases in property taxes and rates, as well as increases in Electricity and water rates are affecting the cost and affordability of managing a property. Absa says.

First National Bank (FNB) also warns in its latest report that rising rates and taxes are bad news from a housing affordability standpoint. “It’s no longer simply about the cost of buying a home and the cost of credit. The cost of running the home is quickly becoming a key challenge,” says FNB.

Banks forecast further house price growth for the rest of the year, with FNB expecting a 9.6% rise in average prices this year, compared to a 3.5% drop in 2009. a growth of 4.7% and 7.3% for 2011 and 2012 respectively.