SA house prices still falling

Johannesburg - Data released earlier on Monday by two South African banks confirm that house prices are now firmly in negative territory, with weakness to remain throughout 2009.

The year-on-year decline in house prices has continued into January, with First National Bank reporting a 4.0% decline in its latest house price index.

Standard Bank says house prices have dropped by 3.6% using its measures.

Weakness in the property market looks set to continue throughout 2009, although decreases in inflation and interest rates may gradually help improve property market conditions.

"Residential demand is expected to respond positively (albeit gradually) to the expected series of interest rate cuts despite weak economic growth," reported FNB in its housing price index for January.

"Against the positive of declining interest rates, though, we have the spectre of slow economic growth with the poor job creation prospects that it brings.

"While growth should receive some stimulus from falling interest rates, it will face challenges for as long as the global economy remains in its slump, and that could be for some time."

Standard Bank expects a 50 basis-point reduction in the repo rate (the rate at which banks borrow money from the Reserve Bank) later this week, with prospects of further rate cuts of 200 basis points over the rest of 2009.

Although interest rates look set to decrease, housing price inflation trends lag considerably behind changes in demand trends. This lag is anticipated again in 2009 following a gradual improvement in demand. "This leads to the expectation that national house price inflation could only resume in 2010," said FNB.

Despite the moderation in inflation, Standard Bank indicates several concerns will remain in 2009.

The biggest problem over the short and medium term is the financing of the country's current-account deficit which threatens currency stability, inflation and interest rates.

Sharp increases in electricity tariffs are likely to add pressure to consumers, along with the rand weakening and pushing up the prices of imported goods. These added pressures are likely to impact housing prices negatively.

"It is believed that there is something of an oversupply in the market, with much selling in order to downscale due to financial pressure (not to mention sales in execution at relatively high levels) and a gradual recovery in demand would probably still take a considerable amount of time to mop up the oversupply," said FNB.

- Fin24.com