HOUSING RECOVERY SHORT-LIVED

2009/11/03 01:50:00 PM
Joan Muller
Johannesburg - Two leading property economists have warned that rising job losses and sky-high debt levels may delay a turnaround in the housing market.
This is despite monthly house price indices published by First National Bank (FNB) and Standard Bank this week pointing to an improvement in the rate of October house price declines.
According to FNB's House Price index, average prices fell by -1% in October year-on-year, a marked improvement on the -3.6% deflation rate recorded in September. Standard Bank's housing index points to a drop of -4.6% in October, also an improvement on the -5.2% recorded in both August and September.
FNB's John Loos said the bank's latest data suggested that house prices were probably only one month away from resuming growth on an annualised basis.
Johan Botha, a property economist for Standard Bank, expected house prices to return to positive growth territory by the second quarter of 2010.
However, Loos said the housing market could lose steam in the second half of 2010 when the next upward cycle in interest rates was expected to begin.
"By mid-2010, the stimulus of lower interest rates would have fully fed through, which means that an important driver of the residential market recovery will no longer be there," he said.
Average house price growth would reach about 5% in 2010, but would flatten out again in late 2010 as the interest rate stimulus wears thin, Loos said.
Even if the recession were nearing its end, households would still be paying off debt and were therefore unlikely to "spend" the economy to far greater gross domestic product (GDP) growth heights of about 2% in 2010.
Said Loos: "That would not offer a huge stimulus to the housing market, so the up cycle promises to be short and moderate."
Botha had a similar view, saying that despite the return of signs of interest in residential property, the economy was under such tremendous strain that the housing market could not be expected to flourish.
"A general lack of improved consumer and business confidence as well as a constrained labour market with deeper job losses will make for a tame recovery in the residential property market," he said.
SA top of property growth pops
Notwithstanding the muted outlook for house price growth over the next year or two, homeowners who have not been forced to sell during the downturn are still sitting pretty over the longer term. FNB data show that on a cumulative basis, the average house price was still 149% higher in October 2009 than in October 2002, at the start of the property boom.
Moreover, the South African housing market has over the past decade delivered better returns than most of its international counterparts.
Latest data from financial magazine The Economist indicate that South Africa was the best performer among 20 countries in terms of both nominal and real (after inflation) price growth over the past 10 years.
According to The Economist, South Africa delivered cumulative house price growth of about 125% (nominal) in the 10 years to the second quarter of 2009. The Economist's figures are based on Absa's housing index.
After South Africa, the next best performer was Spain with 75% growth, while Britain and Australia both notched up price gains of about 70% over the same time.
Japan was the biggest loser in The Economist's house price rankings, with nominal house prices falling by 30% in that country over the 10-year period, the magazine said.
- Fin24.com