Quick & Easy, Apply Online Speak to a SA bond originator
Complete the form below and have a professional bond originator in South Africa contact you.
*No Deposit Home Loans Available
Some of our lenders : ABSA Bond | FNB First National Bank Bond | Standard Bank Bond | Nedbank Bond
These deteriorating trends have emerged in weaker consumer confidence. Consumers' assessment of their own financial position, expected economic conditions, and the appropriateness of the current time to buy durable goods, deteriorated in Q3. Aside from job losses, other concerns such as the higher electricity tariffs, reduced overtime payments and shorter working hours remain problematic for consumers' financial health.
Supply of residential housing lagging. On the supply side of the housing market the value of recorded residential building plans passed by large municipalities (at current prices) during January-to-August 2009 decreased by 44.9% compared to the same period in 2008. The value of residential buildings reported as completed during January-to-July 2009 decreased by 15.1% compared to the same period last year. Quite clearly, future building activity over the short- and medium-term will be seriously constrained. With building cost inflation (around -0.5% y/y according to the producer price index for September) still running above housing deflation, acquiring an existing home may be more affordable. Furthermore, a sizeable overhang of unsold properties exists. This will constrain prices until such time that normality returns to the market. Anecdotal property trends confirm that the affordable segment of the housing market is showing signs of life.
What are the risks to the property market? Despite it being perceived that the economy may be bottoming out, these indicators are at best still uncertain. With the economy under tremendous strain, it cannot be expected that the housing market will flourish. Furthermore, the residential property market is likely to lag developments in the economy. A number of downside risks are still present: the global recovery is not yet firmly established; a relatively strong rand could impact adversely on exports and economic growth; a general lack of improved consumer and business confidence; as well as a constrained labour market with deeper job losses. This will make for a tame recovery in the property market, which is unlikely to gather any traction this year. Base effects in the first quarter this year are also likely to put downward pressure on house price growth in the corresponding period next year. This will make for a slow start to 2010. Other risks include further sharp increases of 45% in electricity tariffs mooted for the next three year and possible increases in the price of oil as the global economy gains traction. In addition, as recent wage settlements have been well above the inflation rate, this during corporate financial hardship, companies will be more inclined to provide below-inflation wage increases during the economic recovery phase.
On the monetary policy front it appears that the downward phase of the interest rate cycle has come to an end. The cumulative cuts that commenced since December 2008, however, will still have to filter fully through the economy. The full impact of interest rate cuts on economic growth could take as long as 12-to-18 months, implying that it may be too early to expect a significant recovery in economic growth soon.
Outlook: Important drivers of overall growth in the economy, such as the level of household income and debt, as well as the medium-term economic and financial outlook, are such that a quick turnaround in the housing market is improbable. There are signs, though, that house price declines are stabilising and that the economy is bottoming out. It does not appear, however, that house price growth will turn positive before the second quarter of 2010.
Mortgage Market News: Standard Bank Home loans
House prices bottoming out
Standard Bank's property book for the first ten months of 2009 revealed an average monthly decline of 4.3% in the median house price. This brings the number of monthly declines to 17 consecutive months. The October smoothed data yielded a rate of contraction of 4.6% y/y, improving slightly from the declines recorded in August and September There are signs that the residential property market is stabilising and that interest in residential property is returning. In real terms, using our estimate of the CPI in October to deflate nominal house prices, the decline in real house prices comes to approximately 10.6% from 11.5% in September.
The smoothed growth rate for October shows that the value of the median residential properties financed by Standard Bank was R553 000 Although price declines are continuing, the declines have stabilised at around -5% y/y. What is more interesting from our perspective is that that potential buyers are returning and that the loosening of credit criteria announced at the beginning of September is showing some results in terms of the number of loan applications and loans granted in October. We also see first time buyers making use of the opportunity to test the market, while the loosening of the loan-to-value constraint is increasing the demand for lower priced properties. This is in contrast to our experience from November last year to August this year, when the median price of properties financed increased. Conversely, the increase in appetite for lower-priced houses is biasing our raw median price downwards.
Of course, improvement in the macroeconomic environment, all be it quite tentative and fragile, will also start to support the property market, but it is unlikely that it will perk up before more convincing signs of a substantial and sustainable upswing emerges.
A slightly improved macroeconomic outlook. The accumulated 500 basis points cut in lending rates since December last year had an immediate impact on the affordability of debt, while the ripple effect of the cuts will in due course support the economy. Further evidence that the economy may be bottoming out is provided by growth in retail and car sales; an uptick in the components of the Purchasing Managers Index (PMI); mining, manufacturing and electricity output; gold, platinum and oil prices; business confidence; and the leading indicator of the South African Reserve Bank. GDP data for the third quarter of the year will be released later this month and is projected to show that the economy is pulling out of the recession. Looking forward, we anticipate that an improved second half of the year will leave growth for 2009 at -1.5% y/y.
Nonetheless, with output falling to the extent that it has, unemployment soared. It is estimated that almost one million South Africans have lost their jobs since the beginning of the year. An immediate improvement on the employment front is also not on the cards given that unemployment is a lagging indicator of economic activity, meaning that even with a turnaround in economic growth, employment will remain weak for an extended period of time. Clearly, the combination of a struggling economy, job layoffs and falling household income is negative for the housing market. Appetite for credit also plunged through the year. The latest data (September) show that growth in credit extended to the private sector collapsed to only 1.5% y/y, and may in fact fall into negative territory over the next few months. Growth in mortgage loans also showed a steady decline to 4.8% y/y in September from 5.5% y/y in August. More positively, with the pace of credit impairments likely to start moderating in the second half of the year, we anticipate the weakness in the broader financial sector to dissolve.