The effects of household debt and slow economic growth are still making themselves felt, with residential property demand slowing and house price growth taking a knock, according to FNB’s September House Price Index. And because household debt-to-disposable income is still very high, aggressive borrowing won’t happen, despite the low interest-rate.
Property strategist John Loos says that house price inflation has sunk to 4,5% from last month’s 6,9%, which means that house prices are rising more slowly. This is the fourth successive month of decline since the “mini-peak” in May this year.
According to the index, the average house price for August was R772 306.
The decreased rate of growth could be attributed to the fact that residential property may be unrealistically priced — a recent FNB estate agent survey hinted at this — and prices will have to adjust downward to create a better balance between demand and supply. At the moment, demand is weak.
At the same time, mortage credit rose by R11,3-billion in August — the largest monthly increase in mortgages, in value terms, since October 2008.
The rise includes the purchase, by a local bank, of a domestic long-term insurer’s home loan book, though, as well as a securitisation issue on the same book — stripping this out, the figure is still a robust R5,7-billion.
“The acceleration has a lot to do with the lagged impact from a surge in new loans in 2009 and earlier this year,” says Loos. “There is usually a long lag between new lending surges until when capital repayment trends catch up.”
In a general sense, credit growth has lagged, but demand usually emerges later in the recovery phase. According to Stanlib economist Kevin Lings, credit growth, especially consumer credit, should move higher this year and the effects of the 30-year-low interest rates and improved real income growth should be felt early next year.
In the meantime, South Africans may resist borrowing, despite the fact that residential property is probably fairly affordable right now, given that it’s recovered somewhat relative to the recession in 2009.
“While the price momentum is slowing, the fundamentals do not suggest a return to recession conditions,” Lings says. “Rather, the fundamentals remain broadly supportive of the residential property market. These include 30-year-low interest rates, rising consumer confidence, rising household income, historically relatively low debt servicing costs within the household sector, easing bank lending conditions, and a structural shortage of residential property.
“The main driver for higher price from here is probably a rise in employment.”
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