Tough year ahead for house sector

Johannesburg - Despite the fact that interest rates have dropped by 1.5% since December 2008, and that more rate cuts are expected, it is unlikely that the house market will stage a miraculous rebound during 2009.

That's according to John Lottering, Research Editor for Rode and Associates, who says that although declining interest rates have a positive effect on demand, lacklustre economic growth, coupled with high house prices and consumer debt, is likely to keep demand under pressure.

"The Sarb composite-leading business cycle indicator has been heading steadily south since March 2008 while real economic growth actually slowed to 0.2% in the third quarter of 2008. Given contracting retail sales and manufacturing output, feeble economic activity can be expected throughout 2009.

"What's more, with increasing defaults, the poor prognosis for growth, and an uncertain international financial environment, banks are likely to be cautious in granting credit. The net result: house-price growth is likely to disappoint in 2009," says Lottering.

This view, he says, is given credence by considering Lightstone's latest national house-price index, which shows that house-price growth for the year ended October 2008 was marginally negative (-0.1%).

But the growth performance by price-segment is even more revealing. As at October 2008, luxury and high-value house prices were down by 3% and 2%, respectively, on a year earlier, whereas mid-value house prices grew by 2%, and prices in the affordable category were up by an astonishing 19%.

"The dramatically stronger performance of the latter category has, certainly to some extent, got its roots in the unaffordability of the other categories, which has forced many buyers to scale down," says Lottering.

At municipal level, house prices in all the major metros contracted by between 1% and 3% year-on-year as at October 2008. The only exception was Ekurhuleni, which posted a positive 2,1% growth rate."

- I-Net Bridge