House Prices Up in September

Some Life in Property Market

A recent article published by Reuters discusses South African house prices, indicating an increase of 3.6 percent year-on-year in September. This is the first increase in 10 months, reflecting fresh activity in the ailing market after an extremely difficult year.

Standard Bank’s property gauge released on a monthly basis showed an increase in the median house price at R580 000. The five month moving average is still in negative terrain, but has improved year-on-year to –5.5 percent after several months of steadily falling prices.

After sharp declines in May and June, Standard Bank said that the rate of decline slowed in July and August, but indicated that the property sector would remain under pressure until consumer spending starts to recover from its cooling period.

The bank said in a statement that, “The unexpected 3.6 percent increase in September is not seen as a new trend, but rather the result of volatile monthly data. It is anticipated that the index will once again show low or negative growth in the months to come. Nonetheless, the latest data show that there is some life in the property market”.

Household budgets have taken a beating with the enforcement of stricter lending laws and a series of interest rate increases, which has in turn put the housing sector under strain. The central bank increased the repo lending rate by 5 percentage points to 12 percent between June 2006 and June 2008 in a bid to fight inflation.

This house price increase coincides with a slowing in the upward rates cycle in August and market experts predict that the next move in interest rates will be down sometime in 2009. Slowing household spending is evident in falling retail and new vehicle sales and the bank believes that the sector may not recover until this picks up again and interest rates start falling.

“Residential property will remain in the doldrums until such time that fundamental drivers of the market turn for the better and that may be some time off,” according to Standard Bank.

The information in this article is courtesy of Reuters Africa (“S.Africa house prices up, but problems remain”, 2 October 2008).

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