House prices fall

Tamlyn Stewart

Tamlyn Stewart

Anyone thinking about buying a house can bargain hunt at leisure as house prices are likely to continue to sink for most of the year.

First National Bank's latest House Price index, released yesterday, showed that year-on-year house price deflation worsened to -1,7percent in December, and FNB Home Loans property strategist John Loos has forecast that house price deflation will continue throughout the next 12 months.

The index average is expected to decline by -4,2percent for 2009 before showing some recovery next year.

Last year house price inflation averaged +5,2percent overall, supported by better conditions at the start of 2008.

This year interest rates are expected to fall steadily throughout the year, which should lift demand for residential property, but this will be offset by weak economic growth as the global economic crisis continues.

"But despite some demand recovery, I believe that oversupplies of stock could take a while longer to be mopped up, and as such expect the FNB House Price Index to show year-on-year deflation for the entire 2009," said Loos.

He advised sellers to avoid selling: "It's not a nice time to sell now and it's going to be a while before you can drive a hard bargain as a seller."

But there are many opportunities for potential purchasers. "It is a fantastic time to be looking around for property. There are still a lot of distressed sellers out there," said Loos.

Erwin Rode, property economist at Rode Property Associates, agreed that 2009 would be a glum year for the house market: "It's going to be a tough year in spite of interest rates forecast to come down because of the lag between interest rate cuts and a change in house prices.

"Typically house prices will stop growing or decline slightly for many years - you can say five years - until inflation catches up," said Rode.

He forecast that house prices could decline by five percent in the year ahead.

Rode advised house-hunters to shop around: "There is no urgency to buy at the moment. There will be many opportunities in the next few years. There is always a possibility that you will get a desperate seller somewhere.

"Speaking generally because market values are not forecast to grow significantly over the next few years, there is no urgency to buy - from a purely investment point of view," Rode said.

But if you have to sell, sell now, said Rode.

"From an investment point of view, try to sell it as soon as possible because you are not going to get much capital growth from the house market for the next few years," he said.