Property prices have continued to fall in a depressed local market, with many lower-income owners selling their homes because of financial strain, a scenario economists expect to worsen before turning closer to 2010.
Economists say that lowered inflation pressure could mean we are at the peak of the interest rate cycle and can expect interest rate cuts in April next year, followed by an upward swing in the property market.
However, the effects of the global economic crisis mean debt risk has shifted to the economic slowdown, and banks' cautious lending practices will remain for some time.
FNB's house price index released yesterday revealed a real (ie adjusted for inflation) year-on-year decline of 9,6 percent. The average house price is now R743 517.
FNB property strategist John Loos said: "The lower-priced freehold two-bedroom and less sub-segment appears to be the weakest area of the market, with average price deflation of -11,6 percent in the third quarter year-on-year, possibly reflecting more severe financial strain among lower-income households."
According to agents working in lower-income areas, up to 40 percent of home owners are selling to downgrade.
Lower-income owners have lower job prospects and less room to manoeuvre in their budgets, knocked by spiralling food and transport costs, the main drivers of overall inflation. CPIX inflation peaked in August at 13,6 percent before falling to 13 percent in September.
A decline in first-time and buy-to-let buyers may also have negatively impacted the two-bedroom and less segment.
However, sellers in the middle and upper segments are holding out on selling in a market in which 88 percent are not receiving their asking price.
The average time on the market in the third quarter rose dramatically from 14 weeks and six days to almost five months.
"Despite horror stories of a surge in bad mortgage debt, repossessions and distressed sales, and the levels have risen sharply, the reality is that the majority of formal South African home owners are not in financial trouble, and many potential sellers would choose not to sell at present in a very depressed market.
"Even among those selling in this thin market, agents estimate that 26 percent are selling because of financial stress, a significant number, but still the minority," Loos said.
On average, the most common reason for selling was because of financial pressure, followed by emigration (20 percent) and downscaling as a result of family restructuring (13 percent).
Cycle
Standard Bank's median house price index recorded a decline of 2,5 percent year-on-year in October, following a rise of 3,6 percent in September.
The median property price transacted with the bank for the period was R580 000. The bank expected the negative growth to continue over the short to medium term.
"South Africa's intensifying economic slowdown, and the positive developments on the inflation front for early next year, suggest that we could be at a peak in the monetary policy tightening cycle," it said.
"The residential property market is expected to improve meaningfully only once fundamental drivers, such as disposable income and interest rates, improve and households feel more comfortable with their debt levels. This is unlikely to happen before late 2009 or early 2010," the report said.
It said Standard Bank expected headline CPI inflation to average 11,7 percent this year and 7,7 percent in 2009 with below-6 percent readings in September 2010.
Loos said First Rand's view was that South Africa could keep out of recession, growing positively, albeit more slowly, but it was difficult to gauge whether or not the credit crunch was ending.
lyse.comins@inl.co.za
o This article was originally published on page 2 of The Mercury on November 05, 2008
Thursday, November 6, 2008
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