Johannesburg - The short-lived boom in house prices over the last few months has come to a halt as the United States seems to be nudging closer to a double-dip recession, FNB's property analyst said on Wednesday.
House price growth has shown a sharp slowdown as the US economy reported disappointing data and the local household sector remains highly indebted, said FNB property expert John Loos.
"We cannot get away from the reality that there is still a broad correlation between our own housing market performance and that of the US," said Loos.
According to Loos, the world's largest economy is in a fragile position.
Last week, the US reported a large drop in housing sales, stoking fears of a double-dip recession.
The reality is that huge monetary and fiscal stimulus packages in recent years have had a disappointing effect on the US economy, the group said.
FNB's Property Analytics department reported on Wednesday that house price growth slowed from 10.1% in July year-on-year to 7.2% in August.
This is the third successive month of decline from a peak of 12.2% in May 2010.
The average house price for August was R777 491.
"The likelihood of a significant slowdown in SA's economic growth in the near term, with the US response to stimulus packages having disappointed, have led us to believe that we should pencil in some average house price decline for 2011," said Loos.
Loos said the local property market was coming off a low base, which will contribute to the group's revised expectations for house price growth during 2010.
FNB expects average house price growth for 2010 to be 6.4%.
"A key reason why the property market did not strengthen impressively during the mini-recovery from early 2009 to early 2010, despite huge interest rate cuts, was due to high household debt levels after a very severe recession."
The household sector debt-to-disposable income ratio dropped slightly from a record high of 83% at the beginning of 2008 to 78.4% in early 2010.
According to Loos, this is why households were unable to respond to lower interest rates.
"The reality is, therefore, that our housing market starts its slowdown off a very weak base," said Loos.
- Fin24.com