House price prediction off the mark

The assertion that SA home prices are likely to fall another 25% in real terms over the next few years should not go unchallenged.

So says Rudi Botha, CEO of SA’s leading mortgage originator, BetterBond, who notes: “For this to happen, there would either have to be a very large differential between nominal house price growth and the rate of inflation for the next few years, or a very long period of no real growth, neither of which seems likely at this time.”

Reacting to the statements contained in the latest Rode Report on the SA property industry, he says: “The latest published inflation rate is 6,1% and while this may rise slightly in the next few months it is fully expected to drop back below 6% by the second half of the year.

“Meanwhile bank forecasts are that nominal house prices will only rise between 2 and 3% this year, resulting in a real house price decline of between 3 and 4%. This situation, they say, could continue for another year but by 2014 house prices are expected to start showing real-term growth once more – which means that at most we can expect a further fall of 6 to 8%**.

“However, we would even question that prediction, since prices in several sectors and areas are already rising faster than expected and in some cases faster than the rate of inflation. The latest figures from FNB, for example, reveal that prices in the affordable sector of the market grew by an average 6,5% last year, while those in the low and middle income sectors grew by 4,6% and 4,8% respectively, and those in the upper income sector by 5%.”

What is more, Botha says, BetterBond’s own statistics show that the average size of home loans granted by the banks increased in all but three of the nine provinces last year and that the actual number of home loans being granted also continues to increase. Total home loan lending, which was averaging between R5bn and R6bn a month in 2008/ 09, averaged some R10bn a month in 2011 and is expected to continue at about this level during 2012.

“These are strong indications that the banks believe, as we do, that home values are not about to fall much further. They would not be relaxing their lending and deposit requirements as they are currently doing if they thought that the assets securing their mortgage bonds were about to show further rapid depreciation.”

And, he notes, given rising demand (more bond applications per month) and the absence of any interest rate stimulus, easier access to finance will be the main driver of the market this year, and will itself strengthen prices as surplus stock is absorbed.

**Estimates are that house prices have already declined, in real terms, between 14% (Absa) and 17% (FNB) on average since the start of 2009.

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