Can things get worse?

More dismal property price figures, but economists reckon your home loan bill will soon be 30% lower than in December.

More dismal property price statistics were released on Wednesday, showing values falling by as much as almost 8% year-on-year, but economists reckon they can see conditions improving before the year is up.

That's provided, of course, SA Reserve Bank Governor Tito Mboweni keeps chopping the interest rate so that we're not far off the 10,5% we were enjoying before it started ticking steadily up from June 2006.

If economists are right, you can expect your debt bills to drop by roughly 30% of what you were paying in December within the next few months.

FNB's House Price Index for March showed South Africa's house prices down by about 8% compared to the same time last year.

Standard Bank's Residential house price report showed a more modest decline of about 1,5%, however the bank emphasised the data was skewed for various reasons, including a drop in middle- and lower-priced properties being processed.

"This means that the proportion of higher-priced properties making up the bank's loan portfolio increased, resulting in a higher median price (and growth rate) for these months," said Dr Johan Botha, of Standard Bank's economics division.

Interest rate cuts earlier this year meant mortgage applicants qualified for higher loan amounts, while stricter lending criteria imposed by banks from November also led to an upward bias in the value of loans.

Wealthier individuals were less affected by loan-to-value restrictions, which effectively mean you can expect to put down a deposit of 20-30% on a property before a bank will grant you a home loan. (As an example: Botha said that on a R600 000 property, which would represent fairly modest accommodation, expect to pay about R120 000 in after-tax money as the deposit.)

Botha said interest rates are expected to drop by another 2,5% this year, which will imply accumulated cuts of 5% from the top of the interest rate cycle "thus giving back the 500 basis points increase in the interest rate during the upward phase of the cycle between mid-2006 and mid-2008".

"The full impact of interest rate cuts on economic growth, however, could take as long as 18 months," he said.

Thanks to electricity prices likely to soar by 33% and rand weakness, interest rates are expected to go up again from August next year as the central bank tries to keep a lid on inflation.

Nevertheless, from about August this year you can expect your debt repayments to feel a whole lot lighter.

Botha told Realestateweb that the property market would probably be in the doldrums until the end of this year. "I don't think we have reached the bottom yet. There could be bargains at the moment and going forward." But he said there is "no sense" in speculating in property. Over time property prices should increase and we can expect "substantial increases" again from 2010, though "not like we had in the past" because that wasn't sustainable.

Port Elizabeth-based economic expert Dr Neal Bruton, of RGT Smart Market Intelligence Ltd, said he expects the interest rate to come down by another 2%, which would mean consumers would enjoy a roughly 29% cut in their debt financing costs compared to December.

This "significant" decline could help boost consumer confidence and put some "renewed vigour" into economic activity.

FNB Home Loans property strategist John Loos, who released the year-on-year figure (-7,8%) for March on Wednesday, said house prices are likely to continue to fall for most of 2009. "The weak economic environment is contributing to a significant amount of ‘offloading' of property, with the FNB Property Barometer survey reporting estate agents' estimates that about 26% of total sellers are selling in order to downscale due to financial pressure". - http://twitter.com/JackieCameron

Article by: Jackie Cameron - www.realestateweb.co.za