Property market to stay troubled

Bond applications, bond amounts are on the increase

DESPITE low interest rates, extremely subdued house price inflation and a slight improvement in the financial position of households, the residential property market is expected to remain in the doldrums this year.

John Loos, a household and property strategist at FNB, said average house price growth this year was anticipated to be even slower than last year, thanks to sluggish economic growth and a lack of a meaningful reduction in interest rates any time soon.

After a “mini-recovery” in 2010 that produced an average house price rise of 6.1 percent for that year, Loos expected 2011 to have ended with an average rise of 3 percent. the value of home loans approved was the highest recorded since May 2008.

Rael Levitt, the chief executive of Auction Alliance, said its third-quarter analysis of housing market conditions in the country’s three largest metropolitan areas revealed that house prices and interest rates had fallen by such a great extent that the monthly cost of owning a home was now more affordable than at any point in the past 15 years.

However, Levitt stressed affordability had not done much to lift the sagging housing sector because many prospective buyers were unwilling to purchase a home or were unable to qualify for a mortgage bond.

Levitt said the housing market analysis also revealed that home values had declined while residential rentals had risen countrywide.

He said with interest rates hovering at around 9 percent and at the lowest level in three decades, monthly bond payments on median priced homes were becoming lower than the average rent level in many middle-income areas.

“It does remain less expensive to rent than to buy in most popular suburbs, but we are reaching the stage that if a buyer has a 10 percent deposit, it is cheaper to buy than rent on properties under R750 000,” he said.

This should be positive for the housing market and Levitt admitted the initial building blocks for a recovery were in place. However, he said the legacy of the recession was acutely preventing households from taking advantage.

Affordability alone had not been enough to overcome the obstacles impeding the recovery in house prices.

These included some homeowners being stuck and unable to move to larger properties because they could not sell their homes, increasing housing operational costs dissuading some potential owners and some prospective buyers not qualifying for mortgage bonds.

Levitt believed affordability could continue to improve as prices declined further in the coming months.

“Further price declines are likely because the share of distressed sales tend to rise in the new year. Banks are often more eager to cut prices in an effort to unload properties quickly, which means that the greater the share of distressed sales, the more prices tend to fall,” he said.

Loos added that the ongoing financial pressure on households, which were attempting to rebuild their balance sheets, resulted in an expectation this year that the more affordable segments of the housing market will outperform the higher priced segments; high transport costs due to high fuel prices and looming tolls could support demand for homes in close proximity to key business nodes and smaller homes were expected to be more popular because they contributed to reduced running costs.