Rode fights back

Property economist Erwin Rode is fighting back after critics claimed that his latest quarterly report, which stated that property was overvalued by 25%, was out of touch with the reality of the market.

Countrywide estate agents have been scrambling to answers phone calls from consumers who wanted clarity after the the release of the report on January 26 2012. Many experts such as Lew Geffen of Sothebys International Realty SA and Samuel Seff, the chairman of Seeff Property Services has said that the report is misleading, these are just two voices in the chorus of naysayers.

Rode has contended this by saying that the information was obtained from Absa Bank’s house price index and the Bureau for Economic Research.

Jacques du Toit, property analyst of Absa Home Loans, has also questioned the 25% overvaluation after studying the Absa’s data tracking of house prices. He said that house prices had peaked mid-August 2007. “If you compare the mid-August figure with our latest data point as at November last year, the real price of a house in the middle segment of the market was 14% below that peak in 2007,” Du Toit said.

Seeff has described the Rode report as one-dimensional sending the wrong message to the ordinary buyer.

On Rode’s view that renting is better than buying in the current market, Seeff said: “About  95 percent of buyers are not looking for investment returns or rental income, but want a foundation upon which to build a life. These are ordinary buyers looking to acquire their first home, expand or move closer to schools or jobs and cannot put their life on hold. No value can be put on owning the roof over your head; it is an investment in your own future and stability.”

Du Toit says there are instances where rentals are cheaper than a bond repayment as rentals have increased at a relatively slow pace. In some cases homeowners have kept rentals low to keep existing tenants as opposed to having an unoccupied building not generating any income.
Du Toit says incomes are likely to change due to variables like the economy, employment, household income, inflation and interest rates. It is up to a prospective homeowner to make provision for these when making the sums to buy.

Geffen says the current market suits especially first time buyers: “…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.”

Geffen says Rode is “out of touch”. “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.”

Geffen quotes figures from mortgage originator ooba that have shown a consistent month-on-month increase in home loan applications and approvals since the beginning of 2011.
Geffen says banks are willing more and more to provide 100% home loans. “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 over lending during the boom years.

“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.”

Geffen points out that there has been little residential building activity in the past four years. “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.”

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