Bad news for home buyers

Buying your own home could get a bit tougher this year even if the Reserve Bank holds off on raising interest rates.

FNB property analyst John Loos thinks house prices will grow faster than salaries this year.

Loos expects house prices, on average, to rise by between 8% and 9% but "average employee remuneration growth will not quite keep pace", even if workers get above-inflation increases.

The lower oil price has brought inflation expectations down sharply over the past few months.

Brent crude oil yesterday traded at below $50 a barrel, less than half its price four months ago.

Economists at Barclays Africa expect inflation to fall back comfortably to within the Reserve Bank's target of 3% to 6%.

They forecast inflation of 4.7% for January and 3.5% for April.

Loos said the slump in oil prices and in global food prices increased the possibility of rate hikes being postponed. But he still expected rates to rise by 0.75 percentage points this year.

Housing affordability would be influenced more by rising house prices than by rising interest rates.

"Over the past three years we have seen a broad improvement in residential demand relative to supply, reflected in both FNB's valuers' market-strength index, which continues to rise, and in a broad declining trend in the average time properties are on the market," he said.

He said he had started to see signs of "mild affordability deterioration" last year.

The ratio of average house price to average employee remuneration deteriorated by 0.6% in the second quarter of 2014 compared to the previous quarter, according to Loos.

This means that houses have become 2.8% less affordable than in the final quarter of 2013.

But houses are still far more affordable than in the throes of the previous property boom, which ended in 2007-2008.

The average price-to-income ratio is 31.7% more favourable for home buyers now than seven years ago. And the average instalment-to-price ratio is 50% better, according to FNB.