Bleak outlook for homeowners

Homeowners will rather renovate than upgrade, predicts expert. BELOW INFLATION: REAL-TERM VALUE WILL DROP DUE TO SLOW ECONOMIC GROWTH

House prices in 2018 are expected not to keep up with inflation due to SA’s economic and political uncertainty. It will be another year of heightened housing activity pressure in 2018, with property economists already forecasting below inflation growth for SA's house prices.

The residential market has been downgraded as a whole for 2017, with a number of property economists expecting house prices to slow between to 3.2% and 3.5%. This forecast is markedly lower than 2016’s growth of 5% and 6% in 2015.

FNB property strategist John Loos and Absa Home Loans property analyst Jacques du Toit are, for now, expecting nominal house prices (before adjusting for inflation) to grow by 4.7% and 3.5% in 2018 respectively.

When factoring in an expected average inflation rate of 5.2% in 2018, house prices are expected to decline by up to 1.7%. House prices have fallen in real terms (after adjusting for inflation) since early 2016, but the rate of decline has been lower than the 16% decline seen in 2009.

Loos said the decline in house prices is not surprising given the worrying state of the economy, junk downgrades of SA’s credit ratings and low levels of consumer and business confidence.

“Consumer confidence is in a dismal state and people are being conservative in their spending and borrowing patterns,” he said.

Housing activity typically mirrors the state of the economy and with the economy expected to grow by a paltry 0.7% in 2017, 1.1% in 2018 and 1.5% in 2019 (according to the National Treasury), house price growth will likely falter in the coming years.

Absa’s Du Toit supported Loos in saying lower consumer confidence will likely result in prospective homeowners postponing new property transactions.

“Existing homeowners will renovate their properties rather than upgrade to an expensive property. The property market will be affected in terms of lower transaction volumes, mortgage lending and demand,” said Du Toit.