FNB PROPERTY BAROMETER (HOME BUYING MARKET) Q3 2008
– Activity levels decline further but agent confidence improves on the back of declining inflation and interest rate risks
SUMMARY
FNB’s Residential Property Barometer for the third quarter reflected further deterioration in the market.
The Barometer is a survey of estate agents in major property regions, in which they are asked to provide an indication of demand activity levels in their area on a scale of 1 to 10, with 10 being the highest level of activity.
The Survey was started back in 2003, and in the third quarter we witnessed activity levels drop to a new lowest level on record at 4.1. This is down from the 4.4 level recorded in the second quarter, and now well-below the near-8 levels recorded back in 2004 at the peak of the property boom.
Looking forward, however, when agents were asked for their expectations regarding the following quarter, 48% said they expected improvement, up from the previous quarter as well as the same quarter a year ago. It would appear that the unchanged interest rate decision of August by the SARB was viewed in a very positive light by agents, and there is a growing belief that there may be light at the end of the interest rate tunnel.
But while inflation risks and interest rate hiking risks have been subsiding thanks to commodity price declines in recent months, we’re far from out of the woods yet. Replacing inflation and interest rate risks is arguably the risk to economic growth caused by the US housing and financial sector crisis.
While SA may not have huge direct exposure to the toxic assets emanating from the US debt market, it would be naïve to believe that our country and residential property market is not hugely exposed to the US risks. This is because the US financial and housing crisis has the potential to wreak havoc with that
country’s economy, depending on how bad it ultimately gets, and when the world’s largest economy slows dramatically the rest of the world is also prone to slowdown. Slowing economy equals slowing job creation and therefore slowing household sector purchasing power.
Firstrand’s view is that South Africa can keep out of recession during the current slowdown, growing slower but positively at least. That is based on the assumption that the world economy can stay out of recession while the US crisis passes through. However, while the recently announced bailout for US financial institutions is encouraging, it is tough to gauge whether this is the end or whether there is lots more bad news to come. In the mean time, the risks remain high and caution should be the
motto with regard to borrowing, spending or lending.
6 October 2008
JOHN LOOS:
FNB HOME LOANS PROPERTY STRATEGIST
011-6490125
John.loos@fnb.co.za
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