Absa not expecting rate increase at April 10 MPC meeting

 Although hounded by inflationary pressures Absa does not expect the Monetary Policy Committee (MPC) to lumber the economy with another interest rate hike when it meets on April 10 for the second time this year to assess the need for any rate adjustments.

The view of the country’s largest commercial bank is based on a definite tapering off in consumer demand; the broader impact another rates increase would have on the economy and also household finances and the fact that the latest rate increases towards the end of last year have not fully worked through the market yet.

Against such a backdrop, Jacques du Toit, Senior Property Analyst Absa Home Loans, believes, it’s now time for the Reserve Bank to pause on rate increases. An increase of 50 basic points, while not having an immediate effect, would undoubtedly further dampen an already depressed property market. A full percentage point hike, as predicted by some economists, would in du Toit’s view, have a major adverse effect not just on property, but on other interest rate sectors, particularly vehicle purchasing.

Jeanne van Jaarsveldt, marketing and finance director of RE/MAX of Southern Africa, also anticipates a cautionary and sensitive approach from the MPC. His analysis is based on the back of a surge in personal insolvencies by 58 percent – the biggest leap since 1999 – and the financial distress swamping homeowners from soaring food, power an fuel costs.

Any hike would continue to stoke the already slowing house price growth, which in Absa’s reckonings dipped to 9,9 percent year-on-year in January and 8,7 percent in February. Du Toit expects the downward grind to continue into March with first quarter growth also probably down on that of the last quarter of 2007.

He confirms, as does Martin Schultheiss, CEO of Homenet, that the National Credit Act is still gnawing away at property sales. Schultheis says Homenet’s first quarter home loan acceptance rate by the banks dipped by between 15 to 20 percent over that of the fourth quarter and turnover down by a similar amount over the same period. Van Jaarsveldt believes the trend is woven throughout the industry proving that consumer appetite has been substantially hampered by external economic forces.

Schultheiss, while doubtful if the public could accommodate another rate increase in terms of their disposable income, foresees a 50 base points rise next week. Apart from the NCA, Schultheiss says the uncertainty shrouding the new property rates structures in terms of valuations has created some market nervousness. Further buyer apprehension comes from current political influences and concerns over the reliability of future electricity supplies and other major infrastructure.

Grant Gavin, owner broker of RE/MAX Panache says everybody in the real estate world is “hoping and praying” that the rate will remain unchanged, but Mike Bennett of ProProp is in little doubt that the MPC, which he believes held back from a January hike because of negative political influences prevailing at that time, “will throw caution to the wind and go the whole hog with a one percent rise” in a bid to control inflation.

Bennett, who runs a 14-office franchise group in the greater Durban Metropolitan area, says sales, in terms of demand from salaried buyers in the lower high income groups have become exceptionally quiet. Below R800 000 the market remains generally active while cash sales in the R3m to R5m continue to take place.

Pinetown’s number of sales, according to PropValues data, Bennett says has dipped by about 70 percent in the past few months over that of the same period of last year.

Gavin reports a less harsh effect on Durban North and Umhlanga Rocks combined markets with a less than half drop from total sales of R170m in February last year to R82m in February this year. Homes are now taking up to three months to sell compared with two to three weeks a year ago. RE/MAX Panache reports a slow January, better February and a good March.

Both du Toit and Schultheiss throw doubt on Bennett’s view that the market will improve in the next six weeks. Du Toit supports a recovery towards the end of the second half of the year, while Schultheiss sees the current tough conditions sticking until the first quarter of next year.

Du Toit forecasts an 8,5 percent growth in house prices for 2009 underpinned by lower inflation, stronger economic growth and increased growth in household disposable incomes. Positive effects from the World Soccer Cup 2010 he expects to only emerge in the second half of next year.
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