Tough year ahead for house market

Despite the fact that interest rates have dropped by 1,5% since December 2008, and that more rate cuts are expected, it is unlikely that the house market will stage a miraculous rebound during 2009. That's according to John Lottering, research editor for Rode and Associates, who says that although declining interest rates have a positive effect on demand, lacklustre economic growth, coupled with high house prices and consumer debt, is likely to keep demand under pressure.

"The SARB composite-leading business cycle indicator has been heading steadily south since March 2008 while real economic growth actually slowed to 0,2% in the third quarter of 2008. Given contracting retail sales and manufacturing output, feeble economic activity can be expected throughout 2009. "What's more, with increasing defaults, the poor prognosis for growth, and an uncertain international financial environment, banks are likely to be cautious in granting credit. The net result: house price growth is likely to disappoint in 2009," says Lottering.

This view, he says, is given credence by considering Lightstone's latest national house-price index, which shows that house-price growth for the year ended October 2008 was marginally negative (-0,1%). But the growth performance by price segment is even more revealing. As at October 2008, luxury and high-value house prices were down by 3% and 2%, respectively, on a year earlier, whereas mid-value house prices (R250,000 to R750,000) grew by 2%, and prices in the affordable category (less than R250,000) were up by an astonishing 19%. "The dramatically stronger performance of the latter category has, certainly to some extent, got its roots in the unaffordability of the other categories, which has forced many buyers to scale down," says Lottering.

Click here to view the Lightstone February Index Report, if you want to read more about this research.

What is your home worth?
Valuing a home can be tricky – because whatever number you conjure up the only way to find out what it’s really worth is to sell it!

If we believe the statistics then the R1m house purchased at the beginning of 2008, probably with a bond of R1,080,000, should (excluding the impact of transaction fees of approximately R45,000) sell for R995,000 today. But that’s not the case! I have seen similar houses selling for R820,000 to R890,000 depending on the sellers' urgency to sell.

It is absolutely the worst time to sell your house! But it is absolutely the best time (for at least the next 14 years) to upgrade your home, if you have the cash to pay the deposit & costs and you have a good credit record!

Article by: Caroline de Wet - RE/MAX 2000