2009: The year of falling prices - including property

Interest rates, food & petrol prices set to fall, but so is the value of your home, warns senior analyst. New stats.

Consumers are set for a year of falling prices, with interest rates expected to tick down slowly thanks to food and fuel inflation easing. Unfortunately for home owners, this trend of prices dropping is set to spread to the South African residential real estate market too.

That was the bleak New Year's message from FNB Home Loans property strategist John Loos on Monday when he released his first residential assessment for 2009.

Although 2008 was probably the toughest trading year ever for many estate agents and others in the property market, overall FNB's figures reflect residential prices rising by an average of 5,2% last year.

That figure was propped up by gains early in the year, while FNB's December figure of -1,7% year-on-year was more reflective of a dismal period in which volumes were dramatically down.

Looking ahead, Loos said: "An expected series of interest rate cuts should have some positive influence on residential demand, although this influence will be partly negated by weak economic growth as the global economic crisis continues.

"But despite some demand recovery, I believe that oversupplies of stock could take a while longer to be mopped up, and as such expect the FNB House Price Index to show year-on-year deflation for the entire 2009."

Three of South Africa's big banks track residential property prices, with FNB recording an average house price in December of R748 428 for 2008. This is up from R711 591 in 2007.

Loos pointed out that house prices weakened for their fourth year last year, down dramatically from the "bumper average inflation rate of 29,5% recorded for 2004, which was the peak year in the most recent property boom".

Real house prices - which take inflation figures into account - dropped 10,6% in December, "worse than the revised figure of the previous month despite some decline in CPI inflation".

Loos said real house price deflation may be curbed soon as consumer price inflation as been declining. It was 13,7% in August and was 11,8% in November, he said.

FNB's figures show that the smaller-sized (two-bedroom and less) market is where "much of the weakness lies".

The average freehold two-bedroom house (R322 000) dropped by not far off 10% (-9,6%) in the last quarter of 2008 compared to the same period in the previous year. Sectional title "two-bed and less" homes fared a little better (average price: R612 072), although values still dropped slightly (-0,4% year-on-year).

One-bed and bachelor homes (R434 535) in sectional title complexes depreciated by -2.9%, according to FNB.

Three-bedroom homes were markedly better performers, with sectional title units (R914 534) up by just over 4% in the fourth quarter of 2008 (year-on-year) and freehold (R841 819) up by almost 9%.

Loos said the "apparent superiority" in performance of the three-bedroom market was perhaps because that is more of a primary residential buyers' market, driven by family demand.

Falling house prices are expected to "be with us for most of, if not the entire, year", said Loos of 2009.

Although anticipated interest rate cuts should be good news for the residential sellers, "the market will unfortunately probably have to deal with the negative news of low economic growth and possible further job shedding this year".

Global factors will also play a role, predicted Loos. "The global economic crisis has already taken its toll on SA's export-driven manufacturing and mining sectors, and it would be unrealistic to believe that the effects are over yet."

2009, he cautioned, "is still expected to be a tough year for the market". "There will probably still be some oversupplies around for much of the year, with selling due to financial strain and ‘sales in execution' not expected to decline sharply overnight."

Article from: www.realestateweb.co.za