Standard Bank HPI up 6.9% y/y

The Standard Bank House Price Index (HPI) rose to 6.9% y/y in April from 6.7% y/y in March. The freehold property price index continued with impressive growth, rising to 9.1% y/y from an upwardly revised 8.7% y/y (originally 8.5% y/y) in March. And the sectional title price index slowed to 7.6% y/y from a downward revised 7.9% y/y (originally 8.1% y/y) in March (fig 1).

This upside surprise in the HPI occurred despite mortgage advances losing momentum in March. Mortgages decelerated to 4.5% y/y in March from 4.7% y/y in February (fig 6). The decelerating mortgage advances is in line with our estimation that there is a general decline in purchasing activity in the property market (fig 3).

The average house price applied for with Standard Bank in April was R1 28,790, up from an average of R991,860 in Q1:16. Total income for an average buyer increased to R54,358 pm, from R53,015 pm in Q1:16 (fig 9). Standard Bank estimates that mortgage affordability deteriorated in April 2016, compared to the Q1:16 average, as measured by price-to-income ratio which gives a multiple of the purchase price of the average house relative to the buyer’s income; higher ratios indicate worse affordability. In April, the average purchase price was 1.58 times the average annual income, up from 1.56 in Q1:16 (fig 4). This reflects that relative to income, the average purchase price grew faster during this period, thereby reducing affordability.

Standard Bank dis-aggregate mortgage demand by buyers’ total income to assess affordability at different income groups by estimating the corresponding price-to-income ratios. Standard Bank finds that buyers falling into lower income groups (earning less than R16,500 pm) have much higher price-to-income ratio compared to their middle income (R16,500 pm – R123,400 pm) and upper income (R123,400+ pm) counterparts (fig 5). On average, in April lower income earners sought to purchase a house 2.64 times their annual income, compared to middle income and upper income earners who sought to purchase properties in multiples of 1.71 and 1.00 their annual income respectively.

Further, Standard Bank disaggregates mortgage demand by the type of account, i.e., “joint account” holders (those assessed on the basis of total household or joint income, and Standard Bank estimates that these constitute 48% of total) and “private individuals” (52% of total). Standard Bank finds that on average, joint account holders appear better off compared to the “private individuals” account holders. Standard Bank estimates that, although it worsened in April, the price-to-income ratio for joint account holders is relatively lower (1.47 versus 1.67), displaying their superior mortgage affordability status (fig 4). This is despite joint account holders preferring higher priced homes, at an average of R1,135,000, compared to private individuals who, on average, sought to acquire a home priced at R940,000. This affirms that buying property via a joint mortgage results in increased purchasing power and ultimately better affordability.

Read more here: April House Price Index – Standard Bank