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Johannesburg - Although expected to remain in single digits, house price inflation is seen to be better in 2010 compared to 2009.
Looking back, FNB's John Loos said that while 2009 as a whole could be described as a weak property year, it showed gradual market strengthening as it progressed.
"The improving trend through 2009 bodes well for a better year in 2010," said Loos.
He pointed out that the full positive impact of interest rate cuts probably still had some way to run, while the economy is gradually emerging from recession.
"These two forces should support stronger demand and better house price inflation in 2010," he said.
According to Loos, 2009 saw national year-on-year house price deflation all the way from January to October, with the worst deflation rate coming in May at -8.3% year-on-year, and average price deflation for the year to November measuring -4.8% using the FNB House Price Index.
"However, with 5 percentage points worth of interest rate cuts starting early in the year, we saw gradually recovering demand for residential property from early in the year.
"This did not immediately lead to any noticeable improvement in house price trends due to huge oversupplies of stock on the market, the result of widespread financial stress," said Loos.
Price growth returns to positive territory
He noted that this financial stress, caused by a severe recession starting late in 2008 and exerting severe pressure on national household income, may not have stopped the interest rate-driven demand recovery but definitely served to curb its pace.
"According to Absa's calculations, property prices were declining for the first seven months of 2009 as a result of the lagged effect of rising interest rates, deteriorating economic conditions, job losses, declining real household disposable income, etc, but since August prices started to rise again on an annual basis up to November when year-on-year price growth of 4,7% was recorded," said Absa Bank's Jacques du Toit.
He pointed out that this increase came on the back of lower interest rates and some relaxation of banks' lending criteria, as well as prospects of gradually improving economic conditions.
"Due to these developments, demand for housing has tapered off to very low levels, which was also influenced by the National Credit Act.
"However, transactions volumes have started to pick up in recent months due to better conditions," he said.
Du Toit further pointed out that price growth was back in positive territory - although not back to the levels of three to five years ago - while demand has started to pick up gradually based on transaction volumes recorded.
Looking to 2010, Du Toit said: "The demand for property is also expected to pick up further in 2010 in view of the economic recovery.
Said Du Toit: "Price growth is forecast to continue to increase gradually in 2010 on the back of improving economic conditions, with nominal growth of at least 5% or more expected, but set to remain in single digits."
"I am not expecting fireworks, as SA has a household sector whose level of indebtedness relative to income is still near historic highs, and this restricts the pace at which the household sector as a whole can grow its credit and thus its property spending.
"I therefore anticipate that, while average house price inflation promises to be better in 2010 compared to 2009, it is still expected to be single-digit house price inflation, averaging 7% to 8% for the year as a whole," concluded Loos.
- I-Net Bridge
