Little to cheer about
Forget about making money on houses in 2011
DESPITE INTEREST RATES dropping to their lowest level in more than 30 years, South Africans have yet to regain their appetite for residential property. Industry players say sales volumes are still roughly half of those recorded during the boom years, which means house prices are likely to show little, if any, growth this year.
In fact, some say it’s no longer if house prices will fall again this year but rather by how much. Latest data from SA’s major banks and mortgage originators show despite average house values rising by 6% to 8% on average last year as a whole (depending on whether you look at Absa, First National Bank, Standard Bank or ooba figures) all indices were down to the low single-digits or falling by year-end. Absa’s index moved into negative growth territory in November (-1,4%), while ooba’s index was down 2,8% in November, the first fall in house prices recorded by it since April 2009.
Property economists expect price growth to weaken further over the coming months on the back of lingering high debt levels, the probability of no further interest rate cuts and an uncertain job market outlook.
FNB property strategist John Loos says it’s unlikely the market will be able to avert falling house prices this year, as cashstrapped consumers simply can’t afford to take on additional mortgage debt.
Loos forecasts prices to drop by around -2,5% for the year as a whole. He believes larger and more expensive homes will take the most pain, while the smaller homes sector should outperform as the trend towards downscaling gains momentum. Says Loos: “Size is becoming a key driver of home buying decisions, as rising operating costs – electricity, water and municipal rates – prompt consumers to opt for smaller properties that are cheaper to run.’’
Absa’s figures confirm that trend, with prices of smaller houses already accelerating at a noticeably faster pace than medium and large homes last year. Between January and November 2010, prices of small homes (80sq m to 140sq m, averaging R688 000) were up 14,7% compared with growth of only 4,5% and 3,5% achieved respectively for medium-sized (141sq m to 220sq m, averaging R951 000) and large houses (221sq m to 400sq m, averaging R1,4m).
Absa housing analyst Jacques du Toit