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House prices depressed in 2011?
The property market is facing a bleak future if the statistics contained in the South African Reserve Bank’s quarterly review are to be believed. It shows that the household-debt-to-disposable-income ratio – a key constraint for the housing market – has actually increased from 78,2% to 78,5% in the third quarter of the year.
However, it points out that the cumulative effects of the easing of monetary policy and the decline in debt-service costs may boost confidence levels and expenditure in the property market next year.
The ratio of debt-servicing costs to disposable income declined from 8,0% to 7,8% while the cumulative interest rates cuts of 150 basis points this year will have an impact on property sales in 2011.
Tendani Mantshimuli, consumer economist at Liberty Retail says that household debt as a percentage of household disposable income increased from 64,3% in 2005 to 80,2% in 2009.
He says that households have been unable to spend the extra money they get when interest rates fall because they use this money to service excessive levels of debt.
The property market has been struggling in the current economic environment even though the Standard Bank’s data showed that house prices actually increased by 3,8% year-on-year while FNB’s data suggests a slightly higher rise of 4,8%.
In the three segments measured by the Absa House Price Index there were clear indications that house price growth was lower in both nominal and real terms in November this year and based on these figures, the major banks are predicting that there will be modest growth of below 5% in 2011.
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