US economy will affect SA housing sector2010

Potential South African residential property investors, says Rob Lawrence, National Manager of Rawson Finance, the bond origination company which has witnessed 78% growth this year, at the moment fall into two main categories: those who think that the US economy is heading for a second dip and those who are confident that the stimulatory relief packages initiated by the US Federal Reserve will see the US economy slowly recovering from now on.

“Whether we like it or not,” says Lawrence, “because it is still by far the biggest economy in the world, the way the US economy moves always impacts on the SA economy and property market. Forming an opinion on these matters is, therefore, important to investors’ decision-making.”

Those holding the less optimistic view, said Lawrence, are arguing that the US cannot keep “printing money” as a means of bailing out its banks and big corporations – and the Fed is intimating that the cut-off point for this has almost been reached.

“Right now,” said Lawrence, “US debt to GDP ratio is very high – although it is not as high as the 120% figure that they coped with after World War II. Many economists are, therefore, postulating that it will take at least another three years, if not more, to work through even part of this.”

Lawrence said that the SA’s 1929 recession took 15 years to work off. The 1987 downturn took five years and the 1998 recession two years.

“Although, historically, recovery periods seem to be getting shorter, the last two global recessions were relatively minor in comparison to the 2008 collapse – so a three year recovery prediction is the absolute minimum that one can accept.”

Those holding the negative view, added Lawrence, will point to the fact that, after a relatively short upswing, house prices in both the US and the UK are now falling again.

Those with a more positive view, said Lawrence, believe that, with 80% of the world’s housing market having already shown some price rises, the US, UK and parts of Europe will now, albeit very slowly, start pulling their housing sectors out of the trough – and, in his view, South Africa is already doing that, despite some recent negative price changes.

“Even if you hold a totally pessimistic view on the immediate prospects for the housing sector, now is still a good time to buy because slowdowns always create a pent up demand which down the line has to be met and causes fast price increases – as we have seen at the lower end of our market. Anyone with patience and without a critical cash flow problem can confidently buy now in the knowledge that, whichever way the market moves, in the long-term it can only move upwards.”

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