Johannesburg - House prices are likely to fall at a rate of double digits in 2009 despite the prospect of another 300 basis points in interest rate cuts, says First National Bank.
FNB's Residential Property Barometer for first quarter 2009, which was released earlier on Monday, offers little hope of a meaningful recovery in housing activity any time soon.
FNB property strategist John Loos says the average drop in house prices is likely to exceed 10% year-on-year by mid-2009. And while further rate cuts may well start to stimulate demand for property again towards year-end, any upturn could be short-lived.
Loos expects house price growth to return to low single digits by mid-2010, but warns that that there is a real risk that the housing market could fall back into a recession by 2011.
"I don't have hopes for fantastic property returns for a number of years as there is quite a high risk that the world will stay in recession for some time to come."
Despite the gloomy outlook for house price growth, FNB's latest quarterly survey among estate agents has recorded an increase in show house visitors. However, other areas of the survey still point towards a rather "unconvincing" picture, says Loos.
Loos says after a slight improvement in the fourth quarter of 2008, both the percentage of properties sold for less than asking price and the average time it took to sell a house deteriorated.
The percentage of properties sold at less than asking price rose to a hefty 86% in first quarter 2009. At the height of the property boom in 2005, only 30% of properties were sold below asking price.
Emigrant sales on the decline
In addition, it is now taking close to 18 weeks (four-and-a-half months) to sell a house. That is up from around six weeks in 2005. Loos says these figures clearly suggest that many sellers are still not realistic in their price expectations.
Downscaling due to financial pressure is still cited by estate agents as the single most important reason for selling. Loos notes it is encouraging to see the importance of emigration as a reason for selling taking a back seat in recent months.
The percentage of sellers who plan to emigrate has dropped from 20% to 11% over the past six months.
This is probably due to a weak global economic situation, creating poor job prospects in many of the popular emigration destinations. Says Loos: "It's become a costly exercise to relocate to London, just to be retrenched."
Loos says falling inflation and interest rates aside, sentiment in the household sector as well as that of banks is likely to dampen further over the coming months, as fears around job losses mount.
"One should thus not expect residential demand to skyrocket as it did in 2003/2004 when rates fell rapidly. At the time, rate cuts were accompanied by a very positive economic growth and employment situation. One should also not expect credit criteria to ease dramatically any time soon."
Meanwhile, the number of homeowners battling to meet monthly mortgage repayments continues to rise. FNB Home Loans CEO Jan Kleynhans says 8% (or 1 360) of FNB's 170 000 home loan costumers are in arrears for three months or more. That's up from about 1% two years ago.
- Fin24.com