Cheaper areas out perform middle and high income areas

By Staff Writer
The price of houses in affordable areas performed better than that of middle and high income areas, according to the latest FNB House Price Index released on Monday.

"In the 3rd quarter of 2010, we saw a superior average price increase for the so-called affordable areas (average price = R409 760) to the tune of 19.7% year-on-year," said John Loos, strategist at FNB Home Loans, in a statement.

Loos gave three possible reasons for this better performance.

"Firstly, this segment is arguably more credit-driven and thus interest rate sensitive, possibly benefiting more from the 2008-10 interest rate cuts.

"Secondly, the affordable segment specifically appears to have been less oversupplied in the boom years and, thirdly, financial pressure across the household sector has encouraged a certain group to seek more affordable homes."

The middle income areas, where the average house price is R713 768, showed price growth of R12.5% year-on-year in the third quarter of 2010.

High income areas, with an average house price of R1.131m, saw price growth of 11.3%.

The "top end" areas with an average house price of R1.915m had an inflation rate of 10.7%.

Overall the average house price growth slowdown continued, with the October FNB House Price Index recording a year-on-year inflation rate of 4.4%, lower than the previous month's revised 4.9%.

"This is the fifth successive month of decline since the May 'mini-peak', but the pace of decline in the price growth trend was slower than preceding months," said Loos.

The average house price for October was R783,621.

However, the October decline took place at a slower pace than previous months.

Loos said there were some "encouraging" short-term signs for property prices.

This included good September inflation data, which increase the likelihood of a second successive interest rate cut at the November Monetary Policy Committee Meeting.

"However, for the time being, the FNB Valuers' Market Strength Index continues to point towards weak demand relative to supply, and we therefore don't anticipate an end to the declining house price inflation rate just yet, give a still-weak economic environment," said Loos.

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