Truth is Treason in the Empire of Lies

Fin24.com is reporting that a Debt panic plagues the South-African property market

Johannesburg - The April rate hike is causing panic amongst homeowners caught up in debt, with many now wanting to sell.

Prospective buyers are relatively scarce and this is causing a flood of property on the market.

Rael Levitt, executive head of the Alliance Group, says that these acute factors have already forced the selling price of property to drop by 10%.

The figure is higher in coastal areas, with areas such as Mossel Bay and Jeffrey’s Bay being especially hard-hit, he says.

Since the recent increase in interest rates, the group’s call centres are inundated with calls by sellers feeling the pressure and seeing auctions as a quick fix for their financial problems.

The situation could get markedly worse if there should be another rates increase this year.

All price categories are affected, but properties above R15m and below 500 000 are not as badly affected. This does not mean that these segments are immune to a market correction, warns Levitt.

“There is no doubt that the sellers are becoming more realistic about price, largely due to supply exceeding demand for the first time in six years.”

The housing market’s predicament is problematic for both homeowners and their financial institutions, “specifically for home loans that were awarded last year and where signs of negative equity are starting to appear,” Levitt says.

Negative equity occurs when the property is worth less that what it originally cost.

Levitt feels the market is not anywhere near the conditions experienced in 2001 when certain properties experienced negative equity of up to 20%. Market conditions are putting pressure on homeowners who are not able to sell their homes to cover their outstanding bonds.

He believes that the property market will experience tough times until the end of 2009.

John Loos, a property analyst at First National Bank’s (FNB) home loans division, says that he believes house price are not falling nationally, though this could happen later in the year.

“According to FNB’s research, some sellers are selling at less than they paid but this does not apply to the majority of properties on the market, Loos says.

“One has to look at the cycle, at some point the rates need to come down again. It’s only a matter of time.”

He predicts that the market could get better in the second half of next year when market sentiment should improve.

At present the inflation outlook means that the property market will remain under pressure and bank economists expect another rates hike in June.

My Comment: Boo hoo

Another report, also by Fin24.com, states that House Prices are in a Downward Spiral

Johannesburg - The Standard Bank median house price fell to R530 000 rand in April from R550 000 in March, representing a decline of 8.6% year-on-year and 3.6% month-on-month.

The five month moving average growth rate declined to 2.8% y/y in April.

However, recent point estimates for house price growth should not be taken at face value and should be interpreted with caution as they are subject to certain distortions, Standard Bank said on Monday.

“A relatively high base value from which the latest and pending year-on- year growth rates are calculated was established last year. The establishment of the high base was primarily due to the temporary upward adjustment in the distribution of mortgages entering our home loans book in the months leading up to the introduction of the National Credit Act (NCA).

“The uncertainty preceding the implementation of the NCA incentivised the prioritisation and increased the urgency by market participants of concluding higher valued housing transactions in order to circumvent the possibility of stricter lending standards post implementation.

“The distortive base effects may continue to impact the point estimates of the monthly median house price in May, June and possibly July, suggesting the possibility of further deep negative year-on-year growth rates in those months,” the bank said.

“The implication of all of this is that we are overstating the extent of underlying house price growth. This notwithstanding, the overall downward trend in house price growth is still reflective of the sharp fall in demand due to the reduction in housing affordability which in turn is a function of other well documented factors constraining the ability of consumers to purchase residential property.

No full blown recession

“In our view the risk of national house price deflation has increased further and there are areas that are possibly already experiencing price deflation albeit from a high base.

Houses are increasingly being sold at below the initial asking price and are staying on the market for longer and there is increasing anecdotal evidence of a rise in distress selling and housing stock for sale.

This suggests that sellers have to revise their price expectations downwards placing downside risk to house prices,” the bank added.

Standard Bank said the recent trends in South African house price growth, when compared to trends in the US, could at first glance seem ominous for the outlook for South African residential property.

“Increasingly, there are comparisons being made between the subprime-induced housing recession in the US housing market and the current challenging conditions facing the South African housing market.

Given the dismal house price growth currently being experienced in South Africa, the question of whether or not the South African housing market will experience a deep recession similar to that being experienced in the US housing market is being asked with increasing frequency.

“However, our analysis of the sources of the recession in the US housing market and its subsequent transmission mechanism to the rest of the US economy suggests that South African residential property will experience a relatively mild cyclical downturn rather than a full blown recession,” Standard Bank said.

My comment: South-Africans were led to believe that they will be immune from the “subprime” crisis, because after-all, South-Africa had no “subprime”. Suckers. They forget that banks used to work on 25% of income to determine your ability to repay a home loan. They changed it to a third. Banks used to require at least a 10% deposit. They changed it to 100%, and sometimes 108% loans.

Once again. Boo hoo.