‘Slight deterioration’ in people’s ability to afford residential property

2015 could see further mild deterioration in Residential and Residential-Related affordability, if our expectations of slightly stronger house price inflation prove true.

Residential Property-Related Affordability is important to both lending institutions as well as their mortgage lending clients, as shifts in affordability have implications in terms of the level of financial pressure that they can exert on households.

Therefore, whereas a dramatic improvement in home and home-related affordability from late-2008 to 2012 was instrumental in lowering levels of bad debt and distressed home selling, early signs of mild affordability deterioration in 2014 begin to pose financial “limitations” on the Household Sector.

ESTIMATES OF HOME BUYING AFFORDABILITY

The December SARB Quarterly Bulletin enabled us to update our own 2 housing affordability indices for the 2nd quarter of 2014, using the SARB Average Employee Remuneration Index, the FNB House Price Index, and a Prime Rate time series. As at the 2nd quarter of 2014, we saw a further slight deterioration in these measures of affordability.

Of our 2 main affordability measures, the 1st measure, namely the Average House Price/Average Employee Remuneration Index, rose (deteriorated) slightly by +0.6% in the 2nd quarter of 2014 compared ...