Sluggish economic fundamentals subdues housing market outlook

Sluggish economic fundamentals subdues housing market outlook

Samuel Seef remains upbeat, but cautions that recovery of the property market will take longer than anticipated.

I remain upbeat, but the recovery of the property market will take longer than anticipated given the sluggish underlying macro-economic fundamentals. Following the robust pre-2007 levels he says, there has been more than four years of slowed activity and market adjustment. As with all markets, real estate is cyclical and I believe that we are now near the bottom of the curve and that prices and sales volumes are likely to ebb along for at least the next eighteen months before any noteworthy uptick. This would however, need to be driven by an economic pick-up, underpinned by positive employment growth.

There has also been significantly low levels of new developments and new stock brought to the market. This is likely to lead to a stock shortage once the market turns.

The volume of distressed properties continues to weigh on the general performance of the market. Only once there is a significant clearance of these can we look to return to normal activity levels he says. On the upside, the Bank deposit requirements will serve to bring more stability to the market in the long term. When home owners have some of their own money invested in their homes, they would generally work harder to keep up their mortgage payments. This will enable owners to better withstand some of the up-down effects characterised during this down-swing and will result in fewer foreclosures. The exception, should be first time home buyers where I would encourage the introduction of a formalised policy that enables them to acquire hundred percent bonds to encourage home ownership.

I do not believe that consumers can look forward to any further interest rate reductions. The South African Reserve Bank has been conservative in their monetary policy and given the upward inflationary trend and continued fuel and utility cost hikes, this would send the wrong message to the market. While a rate cut will improve affordability and help reduce consumer debt levels, it is unlikely to stimulate any significant demand push. The historically low interest rate has done very little to encourage any significant participation in the market by investors and top end buyers this year.

That being said, it is business as usual and activity continues in the market. There are still and keen buyers out there, but sellers need to be mindful of what buyers are prepared to pay and price correctly if they hope to conclude a successful transaction. Buyers are negotiating strongly and on their terms. The upshot is that as a result of the slow turnover, there is real value to be gained at the top end of the market. Now is indeed a good time to buy, but buyers should be aware that these conditions are unlikely to continue indefinitely.

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Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!