Recession Hampers Result of Rate Cuts

The information in this article is courtesy of Business Day (Recession negates effect of rate cuts on home property market – 2 June 2009)

According to John Loos, FNB property strategist, selling due to financial pressure was a key driver of supply.

Loos said that despite interest rate cuts, the economy are still hampering the pace of residential demand, helped on by the announcement that South Africa has slipped into an official recession.

Last week’s decision to cut the interest rate by another percentage point, bought the interest rate reduction since December to 4,5 percentage points. Loos recons that this can only bring some relief to a credit-sensitive market as the residential property market.

Loos warned that consumers could only expect a mild improvement in residential demand in 2009 and that house prices are set to decline till the end of the year. However, this price deflation will peak around mid-year and consumers can expect the rate cuts to start taking effect during the second half of the 2009.

The good news, according to Loos, is that debt repayments are declining – taking the pressure of cash-strapped consumers.

Commercial banks have also reduced their lending rates to the public to 11%.