gave the highest average ratings of 6,34 and 6,02 respectively, for the two quarters up to and including the first quarter of this year which shows improvement on the previous quarters. The upper income areas also reported some demand improvement, with a rating of 5,94 reading. The high net worth segment recorded the lowest rating of 5,45, showing a slight decline from the previous quarter. It is very encouraging that the lower and middle segments are showing increased signs of activity as these market sectors were affected the worst by the recession and the lack of access to finance.
There has always been a correlation between building costs and property prices and during the overheated boom of the mid 2000s, house prices well exceeded building costs. This has however readjusted and we are back to demand levels and prices experienced in 2001 and 2002.
Inflation in SA has been at historically low levels and this has had a major effect as we have become used to double digit inflation which led to 15% to 20% year-on-year house price growth.
ABSA bank reports that the average price of small homes (80m² to 140m²) in February 2011 stood at R784 000, up 4,3% on February 2010. Medium priced homes (141m² to 220m²) was R982 200, up 1,5% on February 2010 while the average price of a large home was R1,15m, up 3,75% on February 2010.
Two major causes of the lower demand for residential real estate has been the high household debt to disposable income ratio of 77% and the stringent mortgage criteria demanded by the four major banks as they try to negotiate their way out of a sea of delinquent mortgages and increased liquidity requirements placed on them. Bank mortgage advances are back at 2000 levels and may take some time to recover to levels we saw in the mid 2000s.
Another finding from the FNB survey that indicates a positive turn in the market is the fact that the number of homeowners selling to downscale due to financial pressure decreased from 28% in the fourth quarter last year to 22% in the first quarter this year, along with the fact that those selling to upgrade increased across all four segments.