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Rode out of touch, says Geffen

Given what is actually happening in the property market at the moment, it is difficult to see how property economist Erwin Rode can justify his prediction that house prices will fall a further 25% in real terms over the next few years.

So says Lew Geffen, chairman of Sotheby’s International Realty in SA, who notes: “For a start the banks continue to relax their lending criteria and are currently reducing their deposit requirements and granting more 100% loans as well as more loans overall.

“Figures from mortgage originator ooba, for example, show that there has been a consistent month-on-month increase in home loan applications – and approvals - since the beginning of 2011, and that in November, the total value of home loans approved through the company was 33% higher than a year previously – and the highest recorded since May 2008.

“Now we just don’t believe the banks would be doing this if they were concerned that home values were going to show a further serious decline – especially when one considers the losses they have faced just recently due to the overlending during the boom years. This put a great many homeowners into a negative equity position when the recession hit and meant that if they defaulted, the banks were often forced to sell their distressed or repossessed properties for far less than even the outstanding balance of the home loan – a hard lesson that is not likely to be quickly forgotten.”

Secondly, he says, demand is way up on 2009 levels in most large cities, and also in many smaller centres where a shortage of rental stock has pushed monthly rentals up to the point where it is now almost as costly to rent as to buy.

“This increase in demand is reflected, certainly in our own group, in shorter listing times (down from six to eight months during the recession to between three and four months now) and a shrinking differential between asking and selling prices. Even FNB notes that while most home sellers are having to lower their asking prices to achieve a sale, the average drop is now around 11%, which is much less than the 15 to 20% we were finding was the norm three years ago.”

And finally, Geffen says, one must remember how little residential building activity there has been in the past four year. “A really negligible amount of new stock has been added to the market during this time and with current supply steadily dwindling, we calculate that the momentum of price growth will pick up and that, short of a massive inflation shock, there will be a return to real growth within the next two years.

“Meanwhile, we believe that with nominal prices and rates at their current historic lows, there could hardly be a more propitious time for potential buyers to enter the market. Opportunities like this generally only occur once or perhaps twice in a lifetime.”    


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