Residential property: Mediocre performance set to continue

Households are still concerned about their financial health and are unwilling to make long-term commitments.

•   Standard Bank's median house price for October lost momentum, with the y/y growth rate increasing at a slower rate of 6.5%, compared to 8.3% in September. This increase of 6.5% was primarily the result of 2009's low base effects rather than an indication of strong growth.

•   Mortgage advances are staging a mild recovery as (a) household confidence improves and (b) lending criteria of financial institutions ease. The slightly stronger appetite for debt is reflected in a willingness to take up additional debt, with total loans and advances increasing by 4.1% y/y in September. Mortgage advances in September increased by 4.8%, compared to September 2009.

•   The main drivers of the residential property market are mixed. Disposable income has shown relatively strong growth in H1:10, making spending on durable goods, such as housing, more attractive. Interest rates are at the lowest level in 30 years, resulting in lower debt-service costs. Net household wealth increased solidly in H1:10. However, weighing on the residential property market are a rising unemployment rate, fears about job losses and historically high levels of debt.

•   The mediocre performance of the property market is set to continue for some time. Clearly, households are still concerned about their financial health and are unwilling to make long-term commitments. Lending criteria of financial institutions remain tight. We expect house prices to remain sluggish over the short- to medium-term and growth may decline further into 2011. Only once overall sentiment improves, may we see a better performing residential property market.

 

Source: www.realestateweb.co.za