New data signals the start of a weakening trend in the residential property market
There has been a sharp up-tick in the estimated average time of a property on the market in SA in the second quarter of this year, the FNB Estate Agent Survey shows.
The research reveals that the time on the market has moved from the previous quarter's 12 weeks and 4 days, to 17 weeks and one day.
This suggests that price levels have gotten further out of touch with reality.
The data shows that the year-on-year residential property growth rate was 24.4% in the second quarter 2010 from the first quarter's 32.3%.
The year-on-year growth has, in fact, made no further progress since the peak of 36.8% reached in the third quarter of 2009 after a sharp acceleration out of negative growth territory in 2008.
The researchers make the point that besides seasonal factors, it is possible that the World Cup proved to be a short-term distraction from property buying.
"The implications could be that prices are beginning to come under pressure, and indeed in June we have seen a slowing in the pace of acceleration in house price growth," said FNB's property analysts.
"Primary residential demand continues to dominate even more than usual, as non-essential spending remains on the backburner in financially tough times," they added.
Regarding the near term future, estate agents' expectations have also deteriorated in the most recent survey.
"We are of the opinion that this probably signals the start of a weakening trend in the residential property market, with signs of a slowing economy, as well as due to a lack of further interest rate stimulus
following the five percentage points' worth of rate cutting that took place from December 2008 to August 2009," the report said.
For the SA Reserve Bank, setting interest rate policy could be challenging in this environment.
The US example of the past decade has perhaps shown that, when interest rates move to abnormally low levels, the pain merely gets delayed, and when rates rise by abnormal magnitudes thereafter, the pain on the household sector and the housing market can be particularly severe.
"So, while it is tempting to wish for more interest rate cutting in order to alleviate pain in tough economic times, we will need to consider the implications at a later stage when, ultimately, interest rates rise," said the property experts.
"At present, we are of the opinion that the SARB has a nicely balanced interest rate stance from a property point of view, having given significant relief to those with debt, but not stimulating strong new household sector borrowing growth."
While it may be tempting to wish for strong borrowing growth, FNB believes that it would be far better in the long term for credit growth to remain slow, and for SA's high household debt-to-disposable income ratio to be worked down to significantly lower levels.
"That would provide more of a buffer against any unwanted shocks, something which is sorely lacking at present," the bank says.
Property may be out of touch with reality
New data signals the start of a weakening trend in the residential property market
There has been a sharp up-tick in the estimated average time of a property on the market in SA in the second quarter of this year, the FNB Estate Agent Survey shows.
The research reveals that the time on the market has moved from the previous quarter's 12 weeks and 4 days, to 17 weeks and one day.
This suggests that price levels have gotten further out of touch with reality.
The data shows that the year-on-year residential property growth rate was 24.4% in the second quarter 2010 from the first quarter's 32.3%.
The year-on-year growth has, in fact, made no further progress since the peak of 36.8% reached in the third quarter of 2009 after a sharp acceleration out of negative growth territory in 2008.
The researchers make the point that besides seasonal factors, it is possible that the World Cup proved to be a short-term distraction from property buying.
"The implications could be that prices are beginning to come under pressure, and indeed in June we have seen a slowing in the pace of acceleration in house price growth," said FNB's property analysts.
"Primary residential demand continues to dominate even more than usual, as non-essential spending remains on the backburner in financially tough times," they added.
Regarding the near term future, estate agents' expectations have also deteriorated in the most recent survey.
"We are of the opinion that this probably signals the start of a weakening trend in the residential property market, with signs of a slowing economy, as well as due to a lack of further interest rate stimulus
following the five percentage points' worth of rate cutting that took place from December 2008 to August 2009," the report said.
For the SA Reserve Bank, setting interest rate policy could be challenging in this environment.
The US example of the past decade has perhaps shown that, when interest rates move to abnormally low levels, the pain merely gets delayed, and when rates rise by abnormal magnitudes thereafter, the pain on the household sector and the housing market can be particularly severe.
"So, while it is tempting to wish for more interest rate cutting in order to alleviate pain in tough economic times, we will need to consider the implications at a later stage when, ultimately, interest rates rise," said the property experts.
"At present, we are of the opinion that the SARB has a nicely balanced interest rate stance from a property point of view, having given significant relief to those with debt, but not stimulating strong new household sector borrowing growth."
While it may be tempting to wish for strong borrowing growth, FNB believes that it would be far better in the long term for credit growth to remain slow, and for SA's high household debt-to-disposable income ratio to be worked down to significantly lower levels.
"That would provide more of a buffer against any unwanted shocks, something which is sorely lacking at present," the bank says.
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