A turnaround in house-price growth isn’t expected just yet, according to FNB’s December house price index.
Although price increases have stabilised, FNB strategist John Loos believes that this is because of the two interest-rate cuts in September and November last year. They gave the market some impetus — but fundamentals have to improve before house-price growth picks up, Loos says.
That said, 2010 was a better year for the residential property market than 2009. “The average price level was estimated to be 6,7% higher than the 2009 average price level, which translates into a real price average (after inflation) that was 2,3% higher in 2010 than in 2009,” Loos said.
Average price growth accelerated in the first half on 2010, due to the massive rate cuts in 2008 and 2009, but subsequent deceleration in price growth came about because the Reserve Bank put the brakes on the pace of interest-rate cutting from late 2009. This meant that house prices started to increase more slowly.
What all this means for consumers is that house prices are unlikely to shoot up in the early months of the year, so if you’re planning to buy, you can take your time and negotiate.
Demand has also weakened relative to supply, according to Loos. “The ongoing weakness in valuers’ perceptions of the market is not surprising, with the household sector still experiencing a high level of indebtedness,” he said.
Other factors that might put the brakes on include two consecutive months of mild increase in the consumer price inflation (CPI) rate (from 3,2% in September to 3,6% in November).
As global food prices and oil prices rise, and domestic petrol price inflation increases, consumer inflation could follow suit. Home rental inflation could also rise.
The small house segment (between 80 and 140 sqaure metres) will probably be the most appealing to consumers as those wishing to buy look for more affordable homes.
With more than 20 000 South Africans with mortgages under debt review, “caution” seems to be the watchword this year.
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