Are house prices about to plateau?

There are now, says Wayne Albutt, the Rawson Property Group’s Western Cape Regional Sales Manager, many signs indicating that in the metro areas a stalemate situation between sellers and buyers could become evident before the end of this year.  

This, if it materializes, will be based on a growing buyer reaction to increasing prices which in the metro areas have led to perceptions that the market is now definitely slanted in the seller’s favour.

“It is quite possible,” says Albutt, “that sellers will in the fairly near future have to rethink the prices at which they put their houses on the market, if they want to meet buyers’ new expectations and achieve a satisfactory turnaround time on their sales.”

In the first half of this year, says Albutt, big city properties were selling in a few days and in many cases achieving either the asking price or even prices above the asking price – a most unusual situation.

“There was,” says Albutt, “a real sense of urgency in the real estate market for the simple reason that buyers, realizing that stock was in short supply, were often afraid that if they did not make an offer quickly the home would be sold under their feet.  Estate agents, too, fuelled this sense of urgency by telling sellers that they could expect quick offers at high prices by advising buyers to make fast decisions.”

The banks, too, adds Albutt, contributed to the hyped up atmosphere by competing aggressively for the award of mortgage bonds and by offering favourable lending rates.

Now, as he sees it, says Albutt, the easy wicket on which sellers have batted for some time could change quite radically.  Buyers are already beginning to dig in their toes and are resisting pressure from estate agents and sellers.  There is a growing realization that the high prices of the sellers’ market, although primarily brought about by demand exceeding supply, are also in many cases due to sellers adopting tough take it or leave it stances.

“While it is of course true,” says Albutt, “that the real estate values over the long term have always gone up, it is also true that the price troughs and peaks which are inevitably part of the property scene are often driven by perceptions rather than real value.  As on the stock exchange, over inflated, upward trends will always at some point undergo a correction, possibly even a crash – and I am inclined to think that the recent steady upward trend in house prices is now due for just such a correction.  Whether this will be major or minor, I am convinced that it is inevitable.”

If and when that happens, says Albutt, the shrewder sellers and estate agents will in consultation with each other adjust their prices and start considering offers that previously would have been rejected.  Those who fail to recognize the new trend will pay for their lack of perception.

“Perceptive estate agents,” says Albutt, “should, I believe, now be warning their clients of the possible changes in the market and should be preparing them for these.  They must no longer encourage anticipation of price rises continuing at previous levels.”

Albutt adds that the plateauing of the market will be with us for at least 18 months.

“Housing markets in which price rises are offset by plateau periods are generally healthy.  Those in which peaks are followed by crashes are not good for the housing market and reduce drastically the public’s confidence in housing as an asset.  I am, however, confident that we are unlikely to see a crash but a leveling off.  Price rises of the last two years have been phenomenal and it is now time that the hard-pressed consumer/buyer, already up against a much higher cost of living index and lower salary increases, is given a chance to catch up.”

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