June House Price Index - Slide Continues

The information in this article is courtesy of iAfrica (Property slide speeds up – 6 July 2009)

John Loos, FNB’s property strategist said that the June house prices index show no sign of improvement and the 450 basis point shaved off the interest rate has had a marginal impact on property demand to date.

The rate of deflation for June came in at -10.2 percent year-on-year, compared with a revised -8.5 percent rate for May. On a month-on-month basis, the rate of deflation was -2.2 percent for June.

Although FNB has announced a mild relaxation on their credit policy is seems like banks have remained cautious. The debt-to-disposable income ratio also remained high and can probably be attributed to disposable income being under severe pressure due to the recession.

The pressured household sector was unable to respond nearly as aggressively to rate cuts today as it did in 1999 and 2003, as the high debt ratio is sustained by disposable income growth falling at a faster rate than households credit growth in recent quarters, said Loos.

He added that the affordable segment of the market has been the most recent casualty and can be seen as the segment where severe financial strain had been building up over the years.

Survey respondents from low-income areas reported a greater percentage of sellers selling in order to downscale as compared to higher income areas. Although it seems that times of financial stress will force buyers into entering the affordable segment, it seems like first-time buyers and those forced to downscale have rather opted to rent.

Loos added that former black township property behaviour displayed a similar weakening trend to the overall affordable segment. This causes great concern as the industries hit the hardest by the recession seems to employ those occupying the affordable segment.