House prices continue to deteriorate

The steady deterioration in house prices continued in April, according to FNB’s House Price Index released on Monday.

This was a result of a sizeable oversupply that had built-up in the residential market.

The number of owners trying to sell houses due to financial pressure was a key driver of the oversupply.

According to property economist John Loos, the April FNB House Price Index had reached double-digit year-on-year average house price deflation for the first time, to the tune of -10,2%.

This put the average house price level back to the level at the end of 2006, Loos said.

“This weakness reflects the cumulative impact of a host of negative economic factors still feeding through, including high interest rates and consumer inflation until recently, as well as recessionary conditions that are hampering domestic job creation and purchasing power,” Loos said.

Looking forward, he said house price decline might be around for the entire year, despite some positive stimulus for residential demand coming from interest rate cuts.

“The reasoning is that, even should demand begin to improve, there exists a significant oversupply of property on the market that will take some time to be mopped up.”

Loos said the key threat to the housing market emanated from a troubled global economy and its impact on South Africa’s own economy and disposable income.

“However, May is an important month for the market domestically, too, with some key political matters to be settled.

“These include the inauguration of the new president Jacob Zuma, and the market will be looking for comfort in the final composition of his Cabinet, and obviously the fate of people such as [Finance] Minister Trevor Manuel.”

Loos said political matters could be key in a thin residential market, as there had been a surge of selling due to emigration last year after the political upheaval at the ANC’s Polokwane conference and Eskom’s power supply problems.

“This emigration selling appears to have subsided, and it is crucial that we get the right signals from the new political leadership this month to avoid a similar emigration surge doing similar damage,” Loos said.

The ongoing mismatch between supply and demand (oversupply) led to the forecast of a -9,5 percent decline in the average 2009 price compared to the 2008 average, with mild price inflation only returning in 2010, Loos added. - Sapa

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