Single-digit rates ruled out

Johannesburg - Single-digit interest rates are unfortunately not in the offing for the housing market - the risk of higher debt levels is too great for that.

Experts reckon we're unlikely to see the prime rate below 10%, even if the Reserve Bank reviews its monetary policy on a monthly basis from now on.

The expectation is that interest rates could fall by one percentage point - even 1.5 percentage points - next week, bringing them to 13% or even 12.5%.

Jacques du Toit, senior property analyst at Absa's home loan division, said more regular meetings do not imply a rate cut every month.

Standard Bank senior economist Johan Botha said that 10.5%, the level interest rates were at in June 2006 before they began to rise, is a psychological barrier and it is unlikely that rates would find themselves below that level. He said it would depend on inflation, which he believes could reach target by the middle of this year, and be close to 5% by year-end.

John Loos, property analyst at FNB's home loan division, said single-digit rates could create a dangerous situation. "If they become abnormally low, there is the risk of household debt levels rising too high, causing a crisis such as that seen in the US." Although this would stimulate the economy, "there would be a price to pay later on".

He believed sustainable recovery in the housing market will depend on a recovery in the world economy, and that the rate stimulus will be short-lived. He reckoned this would improve sentiment in the housing market and bring about a moderate improvement in demand.

Historically it has been unusual to have single-digit interest rates in South Africa.

Loos said prime interest rates at the beginning of 1966 were the lowest ever, at 7.5%. The last time that interest rates were in single-digit territory was in the second quarter of 1974, when they averaged 9.67%.

- Sake24.com

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