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Real house price growth remains illusive

19 January 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

House prices ended 2009 marginally down on 2008 levels. Absa House Price Indices recorded nominal house price declines in two of its three housing segments. Small houses (80m² to 140m²) declined a nominal 0.2% and medium-sized houses (141m² to 220m²) fell by 2.8%. The group reported that large houses (221m² to 400m²) increased by a nominal 0.3% for the year. The average price for a house in each of these segments now stands at R670 400, R931 900 and R1 411 800 respectively. Allowing for inflation, 2009 is the second consecutive year of house price contraction in real terms.

Absa Senior Property Analyst, Jacques du Toit, says house prices should strengthen gradually through 2010. He also expects activity in the residential property market to improve. “Residential property transaction volumes increased in the final quarter of 2009 after bottoming in the second quarter of the year,” says Du Toit. The combined effect of lower interest rates and softer bank lending criteria should underpin this trend.

A better than expected 2009

In an article on Joan Muller says property economists appear to have “underestimated the strength of the housing recovery.” Muller bases this assertion on a better than expected year-end result from Absa and First National Bank (FNB) house price indices. The question is whether a 0.2% contraction in average house prices over the 12 months can be termed a recovery. It might be more appropriate to label 2009 a consolidation. Home owners have endured a second year of negative real growth and it remains unclear to what extent transaction volumes have improved...

Muller notes that both Du Toit (Absa) and John Loos (property strategist at FNB) have revised their 2010 nominal growth forecasts higher. Loos expects 8% while Du Toit has revised his forecast to between 6% and 7%. Even if house prices grow 8% in nominal terms during 2010, real growth will be close to zero again. Bear in mind economists’ expectations of ‘low’ inflation could be railroaded by price pressures including the 2010 FIFA World Cup, administered price increases (Eskom being the main culprit here) and the likely weakening of the domestic currency in the second half. The threat of higher inflation could prompt the Reserve Bank to begin hiking interest rates late in the second half.

A return to the double-digit growth experienced through the last property boom is some way off. According to Loos, “high debt levels will restrict the rate at which households can increase their borrowings for the time being.” Softer lending criteria and lower interest rates have been offset by high levels of consumer debt, job losses and declining real incomes.

Job losses could scupper house demand

The concern is whether property market analysts have paid enough attention to the impact of spiralling job losses on the demand side of the domestic economy? Statistics South Africa’s Q3 2009 Labour Force Survey (released 15 December 2009) showed the official jobless rate at 23.6%, up from 24.5% in Q2. Commenting on the update, trade union Solidarity said more than 770 000 employees had last their jobs since South Africa entered recession in the third quarter of 2008. The union expects total job losses to creep beyond the one million mark when Q4 2009 statistics are released. President Jacob Zuma agrees. After a recent report back by the leadership of South Africa’s recession response team he told the media: "Nearly a million people have been cut loose by the [economic] crisis, and many of them have families that depend on them!” In a bizarre twist government insists they will still meet the target of creating 500 000 work opportunities during Zuma’s first year in office.

Against this backdrop the cynical reader comments in response to Fin24’s upbeat property article are spot on. One reader opined: “The previous property boom was in 1984 – it took almost 20 years for the 2004 boom to come about – and it will take a long time before the next one. Another expressed exasperation with the continued upbeat assessment in light of economic conditions. “Here we go again! Yes – property will improve as soon as the million people that have lost their jobs get re-employed…”

Editor’s thoughts: As the official unemployment measure climbs the level of disposable income contracts. Local consumers have less available to spend on big ticket items and mortgage repayments. This income pressure prompts a number of economists to dismiss recent improvements in motor vehicle sales and house prices as nothing more than a ‘base effect’, an unconvincing recovery from historic lows. Have we underestimated the impact of job cuts on the demand side of the domestic economy? Add your comments below, or send them to


Added by Paul, 19 Jan 2010
Are you commenting on the opaque way in which house price figures are calculated by those with vested interests, or do you mean "elusive"?
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