House price index shows steep drop
2 July 2009

The Standard Bank median house price index declined 4,9% year on year last month - a steeper rate of contraction compared with a year ago - as a result of a sinking economy.

The recession, the level of household income and debt, as well as the medium-term outlook were such that a clear and quick improvement in the housing market was unlikely.

In real terms, using its estimate of the consumer price index last month to deflate the nominal house price, the decline in real house prices came to about 12%, the bank said yesterday.

The decrease in the growth rate for last month showed that the median value of the residential properties financed by Standard Bank was R52 3000.

A sign of tough times was that latest statistics were still reflecting a rising number of insolvencies and liquidations, and banks have reported significant increases in bad debt.

Households owe banks an astounding R1,2trillion, of which the greater part, 82%, represented mortgage advances. Adding to the property market 's woes was that about a third of South Africans with impaired credit records were more than three months in arrears.

With employment a fundamental driver of the housing market, the property market was expected to remain in the doldrums when unemployment was on the increase.

According to Statistics SA, 179 000 jobs were lost in the first quarter of this year in the formal non- agricultural sector relative to the previous quarter, following 22 000 jobs being created in the fourth quarter of last year. Jobs in the formal sector of the economy were lost in the trade, manufacturing, construction and financial sectors .

The latest national accounts data confirmed that the slowdown in the economy had been spearheaded by a substantial decline in household consumption expenditure.

A decline of 4,9% in real household consumption expenditure was reported for the first quarter of this year. The consumer cutback in spending was made worse by a steep decline of 4,5% in the real personal disposable income of households in the quarter.

Standard Bank property analyst Johan Botha said the house price contraction had been aggravated by industry-wide loan-to-value restrictions.

“We have to highlight that any easing in credit-granting criteria will be mild, as risks continue to lie on the upside in so far as job security and income growth is concerned. This will make for a mild recovery in the property market, which is unlikely to gather traction this year,” Botha said.

Meanwhile, FNB said yesterday that more than half of applications it received for home loans were declined due to a combination of excessive debt, high living costs or poor credit records. But financing residential property remained an active business, it said.

Thabang Mokopanele, www.businessday.co.za