Residential Property Still Declining in Value

House Prices Still Dropping

An article by I-Net Bridge published in The Times indicates that Standard Bank’s median house price dropped to R570 000 in July, which reflects a contraction of 2.6% year-on-year.

The banking group’s five-month moving average growth rate in the median house price was recorded at 8.2%. In June, the median house price figure stood at R550 000. This is essentially the middle price on Standard Bank’s home loans portfolio and can be considered a reasonably accurate picture of national house price trends, given the group’s market share in the national mortgage industry.

Standard Bank said that this figure is an improvement on the negative growth rates seen in the three months prior. “South Africa’s intensifying economic slowdown and the positive developments on the inflation front suggest that we may be nearing or at a peak in monetary policy tightening. However, the residential property market is unlikely to exit its quagmire in the near term, essentially due to the precarious state of household finances,” according to the group.

The bank said that recent point estimates in the Standard Bank median house price have exaggerated the extent of the fall in national residential property prices. This has been a result of the National Credit Act-induced base effect, which was established in the months prior to the Act’s implementation last year.

There is uncertainty around the possibility of more stringent credit granting criteria, which led to a bigger proportion of higher valued houses in the underlying sample of home loans from which the median house price was calculated.

Since then, the reduced affordability of housing has resulted in a decline in the demand for residential property and a significant softening in the growth of house prices. This has only been exacerbated by the base effect, resulting in deep negative year-on-year growth rates in the last few months of 2008.

“We had anticipated that, in the second half of 2008, outcomes in the median house price would present a clearer portrayal of house price trends at the national level as the distorting impact of the high base effect alluded to earlier diminishes. The July outcome is, in our view, a better reflection of aggregate house price trends,” said the bank.

The factors primarily driving the residential property market are interest rates, inflation, employment growth and consumer sentiment. Currently, these factors suggest that the housing market will continue to remain weak over the next 12 months. South Africa’s intensifying slowdown in growth will continue to negatively impact the residential property market. Standard Bank added that the residential property market would remain under pressure for the rest of the year and possibly for the first half of 2009.

The information in this article is courtesy of I-Net Bridge (“Standard Bank: July house prices down”, The Times, 1 August 2008).

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