Weak property market set to continue
| Standard Bank's median house price index decreased by 4.1%
y/y in May.
There is no light at the end of the tunnel for house prices and property market weakness is set to continue, Standard Bank said on Tuesday as it released house price data.
Standard Bank's median house price index decreased by 4.1% year-on-year in May, following average declines of 2.7% year-on-year in the first four months of the year.
However, the bank said it expected the recent cuts in interest rates and the markedly slower accumulation of debt by households to improve, albeit gradually, consumers' financial health.
"Under these circumstances and with consumer confidence at extremely low levels, the demand for big-ticket items, including vehicles and housing, will remain constrained by the deterioration in economic activity."
Despite consumer confidence edging up one index point in the first quarter of 2009 from minus four in the fourth quarter of 2008, the rating of the appropriateness of the present time to buy durable goods remained near four-year lows.
"Some respite, however, is provided by lower inflation and a declining interest rate cycle."
Standard Bank said it was hoped that households experiencing financial distress would use the breathing space provided by interest rate cuts to reduce debt levels rather than to accumulate new debt.
It added that the health of the housing market was a function of the overall state of the economy.
"The outlook for the economy over the short term remains bleak; statistics are still reflecting a rising number of insolvencies and liquidations.
"Banks have reported significant increases in bad debt."
According to Standard Bank, households owed banks a staggering R1.2trn of which the greater part constituted mortgage advances.
"With house prices still declining, the wealth base of households is compromised."
It noted that about a third of South Africans with impaired credit records were more than three months in arrears.
"This implies that conditions on this front may worsen before an improvement can be expected," Standard Bank said.