Home prices surprise experts

Johannesburg - It appears that property economists have underestimated the strength of the housing recovery, with the home price dip experienced in 2009 turning out to be milder than anticipated.

Figures released on Monday by Absa Bank, South Africa's biggest mortgage lender, showed house prices fell by an average -0.2% in 2009 (+4.1% in 2008). In September 2009, Absa property analyst Jacques du Toit still expected a 3% drop in average house prices for 2009.

FNB's housing index also ended 2009 on a better-than-expected note. House prices for the year dropped -3.9% for the year overall as recorded by FNB's mortgage book, but had already returned to positive growth territory in November. FNB property strategist John Loos said he had not expected house prices to start rising again before early 2010.

FNB recorded a year-on-year price rise of 2.7% in December. Said Loos: "While [this is] nothing to be over-excited about yet, the trend points towards a significantly better 2010 for those of us involved in the residential property market."

Meanwhile, mortgage originator Ooba's house price index, also released on Monday, reflected few signs of last year's housing recession. It recorded an overall price rise of 1.8% for 2009.

Ooba bases its housing data on successful home loan applications. It therefore tends to react more speedily to market changes than banks, which capture data only once a housing sale has been registered in the deeds office.

Analysts more upbeat on growth

Ooba CEO Saul Geffen said the steady improvement in house prices in 2009 came on the back of lower interest rates filtering through to consumers, and banks relaxing their lending criteria.

The fact that the housing market appeared to be recovering at a quicker pace than previously anticipated prompted both FNB's Loos and Absa's Du Toit to upward adjustment of their house price growth forecasts for 2010.

Loos has changed his initial 5% growth forecast upwards to 8% while Du Toit now expects growth of 6% to 7% for 2010, up from 3% to 4% previously.

However, industry players cautioned that the housing recovery may well start to loose steam by year-end. Du Toit said the Reserve Bank is likely to start hiking interest rates again late in 2010 in an attempt to keep inflation under control, which will dampen housing demand.

Loos had a similar view, citing persistently high debt levels as another key reason why the housing recovery could be relatively short-lived. He said the double-digit house price growth experienced during the boom years of 2004 to 2006 is still a long way off.

"High debt levels will restrict the rate at which households can increase their borrowings for the time being," Loos said. "In fact, it could be a few years before we reach the kind of low household debt-to-income levels needed to fuel a more impressive property boom."

- Fin24.com