Grim outlook for house prices

Johannesburg - South African house prices could tumble 10% to 15% in nominal terms in the current cycle, according to a new research report.

The report by Deutsche Securities certainly paints a gloomier picture than the 0% to 5% decline so far forecast by some banks.

Housing market experts, however, do not agree with this pessimistic view and reckon house prices will not come down more than 10% this year.

According to the Deutsche analysts the worst recorded house price decline was the nominal 13.5% fall in the mid-1980s. They reckon house prices are again heading there, because in the past affordability has been improved by a sharp drop in interest rates, as well as inflation.

The fact that interest rates are now structurally lower than they were then limits the possibility of significant interest-rate cuts.

Property valuer and economist Erwin Rode of Rode & Associates says the decline of up to 15% is a possible scenario, but at this stage unlikely. At most he expects a 5% to 10% drop, and observes that the big unknown factor is that banks could be forced to repossess houses on a massive scale, opening the floodgates and swamping the market.

First National Bank's home loan division property analyst John Loos expects a 10% decline this year. He then expects a short period of rising house prices, stimulated by interest-rate cuts.

But his biggest concern is the period after 2010. He believes everything depends on the recovery of the global economy. "If the global recession persists after two years we can expect a further deterioration in house prices."

- Sake24.com

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