Financial advisers are at war with information
Print media, radio, television and the Internet… There is nowhere for us to hide from financial information. Each and every day we are bombarded with share price movements, precious metals prices and foreign exchange rates plus a raft of indicators that t
Financial advisers are at war with information too. For obvious reasons they need to stay up to date with the all things economic – including items such as GDP growth, inflation, interest rates and asset class returns. As such most of you probably receive dozens of reports, brochures and updates from fund managers, product providers and dedicated news services. The question is – what to read? It is nigh impossible for any person to read more than a fraction of the information that passes through their office on a daily basis. As an example I recently heard it would take 57-years to read all the “terms and conditions” any of us encounter in our lifetime online. If I read every piece of economic analysis that landed in my inbox I would probably spend 30-hours of every 24 reading!
Use it or lose it...
I started thinking about the frequency and volume of financial data available to investors when the latest FNB Property Barometer landed in my inbox. Considering the average home buyer purchases a primary residence, and commits to that property for periods of 10-years and longer, I wondered whether a monthly house price index was really necessary. Should we – and I am guilty of this too – be trumpeting this month’s marginal improvement (or decline) in house prices… And should the average homeowner care about the month-on-month or year-on-year performance of a house price index that in all likelihood is detached from his reality? There are so many factors that affect house prices, including location, the condition of the property and the seller’s financial position that cannot ever reflect in an index!
What does the latest FNB Property Barometer reveal about the state of South Africa’s residential real estate market? It showed a “further slight acceleration in March 2012, up from a revised February growth rate of 7.1% to 8% year-on-year!” But before you pop the “house price recovery” champagne consider the following… Real house prices (house prices adjusted for CPI inflation over the period) were 11.5% lower at February 2012 than at the real house price peak reached in March 2008. What FNB emphasises when sending out their media communication is the month-on-month improvement… What your clients need to know is that house prices have declined, in real terms, by 11.5% since March 2008.
Is this the beginning of a housing market recovery?
John Loos, Household and Property Sector Strategist at FNB Home Loans, paints a rather gloomy picture. “Although the world and local economy has been going through a good period of economic performance over the past two quarters, the expectation remains for a slower economic growth year for both the world and local economy,” he says. On the plus side this “soft” growth should keep inflation in check… And as we already know, lower inflation plays out through “lower for longer” interest rates which should at the very least underpin current house prices.
“Low interest rates are expected to lead to further increase in borrower and lender confidence, as their perceptions of risk continue to improve,” says Loos. “As a result, despite expectations of slower global and local economic growth for 2012 as a whole, we are now of the opinion that average house price growth for 2012 could achieve a higher rate of around 6%, compared to 3.2% for 2011.”
It looks like we’re at the bottom of the house price cycle… Some property experts, such as Erwin Rode of Rode & Associates reckon we could plough this bottom for a few more years – even as late as 2015… But the guys at FNB are always more upbeat. With a bit of luck we can see positive real returns from residential real estate from 2013.
Editor’s thoughts: Each of us suffers from some form of information overload, be it too many posts on a Facebook wall, too many client request, or too many market reports. The trick is to know which information or channel serves you best and to ensure you get the best 80% of available knowledge by reading the 20% you can comfortably manage. How do you decide what reports to read – and what to send to the recycle bin?Add your comment below, or send it to [email protected]
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