Rate Cut Of .5%: The market is forecast to bottom around mid-2009 and to gradually recover
December 12, 2008 – 11:16 am | by JohanNew Here? You’re Invited To Simon’s Town News Updates Subscribe here.
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Most analysts tells us that home owners will have to wait until 2010 for noticeable improvements in home values. Therefore if you can wait then don’t sell your Simon’s Town home until 2010. This is not good news for Simon’s Town real estate agents like us. But it’s the advice that matters and this is what I would do if I were you.
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The 50 basis points rate cut on Thursday brings fairly good relief to homeowners, as it signals a drop of around R500 per R1m of a bond.
So says Brian Falconer, CEO of Colliers International Residential, who adds that the decrease by 50 basis points signals that the tightening cycle has had the desired effect in reducing consumer spending and curbing inflation. "The rate cut should be the first of a series of rate cuts within the next six months," he says.
"In the meantime, property prices have reached market-appropriate levels and there is now pent-up demand from normal buyers: those who need to buy because they are upsizing, downsizing or relocating. Many homeowners need to sell for the same reasons, and those who bought more than three years ago should still see healthy capital growth."
However, FNB property strategist John Loos said the rate cut decision offers little financial relief to the hard-pressed household. "But it is believed to be only the start of a series of interest rate reductions expected to end in interest rates being in the region of 3,5 percentage points lower at 12% prime," he said.
"The affordability of housing has been negatively affected by the cumulative 500 basis points in interest rates since June 2006, which caused monthly mortgage repayments to rise by 35,6%. Consumers’ spending power was also severely eroded by sharply rising fuel and food prices over the past two years," says Jacques du Toit, property economist at Absa.
He says based on the higher interest rates and the ratio of household mortgage debt to disposable income, which was somewhat lower at a level of 47,3% in the third quarter of 2008 (48,2% in the second quarter), the cost of servicing household mortgage debt came to 7,3% of disposable income in the third quarter, unchanged from the second quarter.
"Nominal year-on-year (y/y) house price growth was at 0,3% in November 2008 at its lowest level since late 1992, while in real terms, prices were down by more than 10% y/y in October. Nominal house price growth for the full year is forecast at 4% (14,5% in 2007), with a growth rate of less than 3% projected for 2009. In real terms house prices are set to drop by about 7% in 2008, with a further decline expected in 2009."
Du Toit says against the background of current and expected economic conditions, especially with regard to inflation, interest rates are forecast to be cut further during the course of 2009. However, he warns that the outlook for the residential property market towards year-end and into 2009 remains depressed. "The market is forecast to bottom around mid-2009 and to gradually recover in the second half of the year on the back of lower inflation and interest rates, only to record a noticeable improvement in 2010." – Eugene Brink
Therefore wait before you sell your Simon’s Town home. And if you want to place your Simon’s property on the market ensure that you don’t add any fat to the asking price. Because this is not the time to negotiate. Be confident that you have the correct price to sell your Simon’s Town house and stick to it. No Fat! Or hang on till 2010.
Good Luck
Johan Horak
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