Nominal growth is better than nothing!
As global stock markets wallow deep in negative territory we’re forced to turn to the domestic housing market for some ‘good’ news. According to Jacques du Toit, senior property analyst at Absa Home Loans, year-on-year growth to September 2008 for the middle segment of the housing market was 1.5%. Granted – trumpeting about 1.5% nominal growth has to be dismissed as clutching at straws – but we challenge you to find better news in today’s economic climate!
The reality is that real estate, like equities, is in the doldrums right now. Absa’s monthly property barometer is chock-full of depressing statistics. House prices in the bank’s middle segment have declined in real terms for eight consecutive months with the average price of R960 600 only marginally better than a year ago. Du Toit says that year-to-date August 2008 real prices (adjusted for headline consumer price inflation) are down 10.2% – the steepest decline since October 1992.
Other housing market indicators confirm the trend
Absa’s numbers are echoed by those of other leading property indexes. First National Bank’s September property index recorded its worst level ever, at 4.1 points. And the ‘oobarometer’ house price index (launched by home loan originator ooba in July this year) for the same period shows average house prices have grown by 3.4% year-on-year. The real blow for those making a living in the real estate industry is that residential property sales are down approximately 50% compared to last year. Just imagine what depressing reading these statistics would make if the industry reported on a pure turnover (units sold multiplied by price) basis. The outlook for the coming year is not promising. “It is anticipated that the index will show low or negative growth in future months,” says ooba.
Additional statistics from the oobarometer house price index make for interesting reading. The index provides standalone figures for first time home buyers who paid an average of R551 934 for their new home compared to R540 736 in September 2007. The average purchase price across all transactions included in the index is R794 977.
Banks are definitely cracking the whip
Banks are turning down home loan applications left, right and centre. The decline ratio now stands at 51%, meaning that more than half of all initial applications are turned down. This compares with 40.6% a year ago. The bad news for those hoping to get their feet on the bottom rung of the property ladder is that re-applying after being refused on your first attempt is not as rewarding as it used to be. The oobarometer reveals that only 32.4% of applications declined by one bank are approved by another – down from 41.8% a year ago. On that point: Are these banks using different criteria to assess the clients’ ability to repay the loan? Or are these re-submitted home loan applications cleverly altered to get a “yes” from the second bank?
What the statistics confirm is that banks have adopted a much tougher stance when it comes to granting credit. Saul Geffen, chief executive of ooba, says that “the higher decline ratio reflects the impact of the National Credit Act on curbing the extension of credit.” This legislation requires banks to pay close attention to applicants’ net disposable income. With general debt levels already high, they’ve had little choice but to turn down many new loan applications. “The NCA has been positive for SA as it has lessened the possible impact of the sub-prime crisis within SA,” says Geffen. He also said that the international financial market crisis was making it difficult for domestic banks due to their access to capital being constrained.
Another consequence of this tougher stance is that home buyers are putting down larger deposits. The average deposit on home purchases has risen to 18.6% of the bond amount – up from 12.2% in September 2007. This means the average buyer is funding his home purchase to the tune of R148 579 before paying other costs like transfer fees and attorney fees. Buying a new home is not a decision to take lightly these days!
Editor’s thoughts:
Although house prices continue to decline in real terms we’d rather be sitting in a slowly devaluing house than in the markets right now. Are you concerned about current residential property valuations – or are we due a recovery? Add your comments below, or send them to [email protected]
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