Interest rates are down, but buyers are still cash-strapped
Interest rates are at their lowest level in three years, but households are still not in a position to take advantage of the improved affordability, and house price inflation is expected to resume only next year.
John Loos, First National Bank’s property analyst, says that signs of a mild increase in the demand for residential property are almost solely due to the interest rate cuts. However, real household income has actually been declining due to job losses, deteriorating disposable income and weaker investment income flows.
As a result, “it is probably realistic to expect house prices to continue declining, albeit at a slowing rate, in the second half of the year,” Loos says.
According to the latest Standard Bank property report, households owe banks a total R1.2 trillion, of which 70 percent represents home loans. About a third of South Africans with impaired credit records are more than three months in arrears with their debt repayments. With house prices still declining, the wealth base of households is compromised, putting further strain on households.
According to the Standard Bank property report, this will make for only a mild recovery in the property market, which is unlikely to gather any traction this year.
Saul Geffen, the chief executive of ooba, says there has been a slight improvement in year-on-year house prices for the second time in two months. “Although it would be premature to suggest that this is an indication of a recovery in the property market, the mild increase is encouraging,” he says.
According to the oobarometer, the average purchase price of a house was R775 172 in July this year, compared with R767 266 in July last year. However, the month-on-month average purchase price decreased in July by 1.1 percent to R775 172 from R784 427 in June.