In the first quarter of 2016, the median first-time buyer earned approximately R29,000 pm, and falls within our Emerging Middle Income group, i.e. with household income of R16,418 – R33,333.
Analyzing income, house price and installment trends for a first-time buyers over the last decade, Standard Bank shows that mortgage affordability has structurally improved. This is largely due to the median income of a first time buyer growing faster than the median price of a house demanded by a first time buyer, combined with historically low interest rates. With house prices lagging income, and interest rates remaining low, thus anchoring the cost of servicing a mortgage, a median first-time buyer is in a relatively better position to acquire and pay for their home than they were a decade ago.
However, from a business cycle perspective affordability is worsening, because GDP growth is slowing and SA has entered a downward phase of its business cycle. GDP drives income and the demand for mortgages, as well as banks’ appetite for risk and consequently the supply of mortgages.
Standard Bank notes that in the last downward phase of SA’s business cycle, income growth took a while to respond to slower GDP growth. In keeping with this trend, as SA entered the latest downward phase of its business cycle in December 2013, income growth continued to rise for almost two years, and began slowing in Q3 2015.
From a supply of mortgages perspective, we find that the average loan-to-purchase price (LTP) leads GDP growth, indicating a forward-looking approach in bank lending practices. A median first-time buyer generally qualifies for a smaller loan as a percentage of the purchase price as GDP slows and interest rates rise. In the current cycle, the loan-to-purchase price started declining in Q3 2013.