Low Bond to Income Ratio Spells Good Times for Homebuyers

It may seem hard to believe, but the average home price in SA today is more than three times what it was 10 years ago - despite all that has happened since the sub-prime crisis of 2008 plunged the world into a financial slump.

However, thanks to lower interest rates now than in 2001, you don't need to earn three times as much - or more - to buy the average home.

"And that just goes to show," says Berry Everitt, MD of the Chas Everitt International property group, "not only that it pays to invest in property for the long term, but also what a great purchasing opportunity prospective buyers have at the moment."

The latest statistics from Absa, he notes, put the current average price of a small home (80sqm to 140sqm) at R754 000 - or more than three times the average price of R222 000 (also recorded by Absa) at the end of 2001.

The comparative pricing for medium-size houses (141sqm to 220sqm) is just over R1m now, on average, compared with the R289 000 recorded in 2001, while the average price for large homes (221sqm to 400sqm) has jumped from R408 000 in 2001 to the current R1,45m.

"So across the board," says Everitt, "home prices have almost quadrupled in the past 10 years. And yet the current average monthly home loan repayment (on an 80% loan over 20 years) has not tripled or quadrupled from the R3000 a month recorded in 2001, but is only R8100.

"The difference is of course in the home loan interest rate, which averaged 13,8% in 2001 but has stayed steady at 9% this year - and has also helped to reduce the average home loan repayment, as a percentage of the average household disposable income, to its lowest level in more than 10 years."

The decline in this ratio is an extremely important development, he says, because it makes it easier for buyers at all levels to meet the income qualification levels for home loans and will no doubt stimulate demand in the coming year.

"All things being equal, it should also prompt an increase in loan approvals, especially if wages and salaries continue to increase faster than home prices. In fact I would go so far as to say this represents the real turning point of the market, and that prospective buyers should hurry now if they don't want to miss out on the next 10 years of value growth."