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Housing market could struggle until 2013

Dec 18 2011 16:03 Elma Kloppers

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Johannesburg - Next year will be an even worse year for the housing market than 2011. It might improve only in 2013.

Experts expect that house price growth will further level out, largely as a result of the still-high indebtedness of households and a lack of interest-rate stimulus since 2009.

First National Bank property analyst John Loos says that at this stage there is little on the horizon to indicate better house prices next year.

He says that last year house prices rose at an annualised rate of 6.1% for the full year and the expectation is that this year's growth rate will be around 3%. For next year he expects growth of between 1% and 2% for the year as a whole.

Although Loos reckons that next year interest rates could be lowered by a half to one percentage point, he does not believe that this would have a significant effect on the housing market.

“For the housing market's long-term health it is important for households' debt-to-disposable-income ratio to improve significantly.” In the third quarter of this year this figure improved to 75% from 75.8% in the second quarter, but he says it needs to come down to below 70%. He believes this will not happen next year, but only in 2013.

Peter Gilmour, the chairperson of Re/Max Southern Africa, expects that financial institutions' risk appetite will improve in 2012, although deposits of between 10% and 30% will remain a reality for those wanting to buy a house.

He says that financial institutions have relaxed their lending criteria slightly over the past year to a point where almost 50% of all applications for home loans are approved. This is a distinct improvement on the 26% being approved in April 2009, but far from the 80% approval rate in the heyday of 2007, he says.

Berry Everitt, managing director of property group Chas Everitt, says prospective homebuyers should keep in mind that a larger deposit has many benefits. If one buys a house costing, for instance, R800 000 with a 12% deposit, at the current prime lending rate of 9% the loan will be R704 000 and the monthly instalments just over R6 300.

Everitt said the loan for a buyer putting down an 18% deposit will be only R656 000 and his monthly instalments less than R6 000. Should the buyer pay an additional R300 a month off on the capital, he will pay off the loan two years earlier and save around R108 000 in interest.

house prices  |  house price growth
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