Standard Bank forecasts slowdown in house prices

STANDARD Bank forecasts a slow down in house prices while maintaining its long-held view that aggregated house prices are unlikely to fall.
In a statement released today, the bank attributed the predicted slow down to waning investor appetite for buy-to-let residential properties, combined with constrained demand and finances from owner-occupants.

"While the moderation is supported by several factors, rising interest rates since mid-2006 are one of the key restraints on house price growth in the short to medium term," read the statement.

"But, even though the 200 basis points rise in interest rates will noticeably limit further house price escalation, Standard Bank maintains its long-held view that aggregated house prices are unlikely to fall."

The bank said that once the slowdown became more pronounced, it should provide ammunition for the institution to limit the upward interest rate cycle.

"Standard Bank does not expect any further interest rate hikes in the current cycle, although there is a noteworthy risk of marginal additional tightening as the Reserve Bank awaits confirmation of the slowdown underway in consumer activity," read the statement.

The bank’s senior economist Elna Moolman pointed out that house price growth had moderated to 6,9% year-on-year in January from 18,5% year-on-year a year earlier.

"This caused the continuing of a sliding trend in growth rates from the 35% year-on-year peak in October 2004," she said.

"The slow down is underpinned by fading momentum following frenzied growth earlier, the absence of fresh stimulus, and the adverse impact of rising interest rates and high house prices on the affordability of home-owners’ mortgages and the yields of investors."

Moolman further pointed out that slumping global property markets, the US market in particular, were rekindling fears that house prices may fall.

"In our view, however, a protracted stagnation in house prices is more likely."

Buoyant macroeconomic conditions were expected to bring house price growth to return to "reasonably high single-digit rates in the medium term, in line with nominal income growth", read the statement.

"In the short term, a protracted slump in house price growth is expected as the impact of last year’s monetary policy tightening works its way through the economy."

Article from: www.businessday.co.za