How low can house prices go?
Jul 07 2008 15:10
Joan Muller
Johannesburg - Data released by banks and other residential property players over the past few days suggests that the outlook for the housing market has taken a sharp turn for the worse.
In January this year most property analysts were still debating whether or not house price growth will dip below 10% in 2008. At the time, most banks and estate agents were still reporting double-digit growth and the possibility of house prices actually dropping this year was dismissed as a highly unlikely scenario.
But figures released by leading mortgage originator ooba (ex-MortgageSA) earlier on Monday show that house prices have already started to fall. These figures add further support to growing evidence that SA's housing slump may be far deeper and wider than generally anticipated.
The price correction is particularly evident at the lower end of the market. Saul Geffen, CE of ooba, says the group's data shows that the average price of a property bought by first time buyers has fallen 4.9% over the past 12 months, from R548 800 in June 2007 to R521 600 in June 2008.
Geffen says most of that decline has occurred in the past month with prices dropping from R542 400 in May 2008 to June's R521 600, a decline of 3.8%. The average price of all property purchased according to ooba's research has dropped 1.7%, from R807 000 in June 2007 to R793 600 in June 2008.
These figures follow the release of Standard Bank's monthly property gauge last week, which shows that median house prices dropped 11.3% in June. Twelve months earlier in June 2007 Standard Bank's median price index was still rising at 18.8%.
Absa's monthly house price index released on Monday may well still be in positive growth territory, with average prices up 3.8% in June. But Absa's figures nevertheless also point to a rapid slowdown in housing activity in recent months. In fact, both the Standard Bank and Absa indices are now at their lowest levels in nearly a decade despite the two banks using different methodologies to measure house price movements.
The key question is where house prices are heading over the next six to 12 months, particularly given the possibility of further interest rate hikes in August and October. Property economist and valuator Erwin Rode dismisses earlier suggestions that house prices could tumble by as much as 40%. Rode forecasts a more moderate house price drop of 10% over the next twelve months.
He expects house prices to stabilise by mid-2009 and thereafter to move sideways for at least three to five years. In other words, although Rode doesn't expect a massive landslide in property prices he also doesn't foresee any real recovery in housing activity until at least 2012. Rode says his view is based primarily on SA's worrying inflation outlook, which appears unlikely to improve any time soon.
- Fin24.com
