FNB property barometer falls to 4,1

The FNB Property Barometer for the third quarter of 2008 declined to an average activity level of 4,1 – the lowest in the history of the Barometer – from a level of 4,4 in the second quarter, reflecting further weakening in demand activity levels as experienced by estate agents.

A further indication of the weakening trend is to be found in the average length of time that a home stays on the market before getting sold. From an average time of 14 weeks and 6 days in the second quarter, the average time frame shot to 20 weeks and 1 day in the most recent quarter, the survey, released on Monday, found.

First-time buyers made up a mere 12% of the market, the lowest percentage on record, while the percentage of sellers not obtaining their asking price rose further from 85% previous to 88%.

The buy-to-let market portion of the market, too, remains subdued with only 13% of total buyers believed to be buy-to-let buyers.

Looking forward, John Loos, FNB Home Loans property strategist, said that there have been a few encouraging signs emerging with regard to the future well-being of the residential market.

Most notably, a recent decline in oil prices, resulting in domestic petrol price cuts, and some softening in global food price inflation bode well for domestic consumer price inflation, and FNB believes that the CPIX inflation rate may be around its peak.

The start of an expected decline in inflation would mean inflation eating less into disposable income going forward, while also expected to translate into interest rate cutting as from April 2009. In addition, the household sector’s debt-to-disposable income ratio has begun to decline, suggesting an improving household sector ability to service its debt burden.

But while inflation and interest rate risks look set to subside, which is great news for a property market under pressure, Loos cautions against too much excitement just yet. Moving in to replace the above risks is the current threat to global economic growth emanating from the United States.

Loos believes that it would be naïve to think that South Africa’s property and financial sectors are not significantly exposed to potential fallout from the United States financial and housing sector crisis via the potential impact of the crisis on our economy.

While the US financial sector’s bailout plan is a fait accompli, it remains to be seen as to how strictly the recovery plan is regulated, and how tight lending policies to households in that country become in an effort to restore responsible lending practices.

The combination of tight household/consumer lending and falling house prices can have a major impact on already-low US consumer confidence and thus on economic growth in the world’s largest economy. If things get bad enough, and Loos believes that we probably don’t really know how bad that country’s financial crisis is yet, South Africa would not be immune from recessionary conditions and financial stress.

So, while FirstRand’s most likely scenario is one of slower domestic economic growth but remaining positive, which would lead to a recovery in residential property demand from next year as interest rates decline, one ignores the current global growth risks at one’s peril. If matters get significantly worse than expected from a growth point of view, the residential property market will not escape unscathed, Loos said.

He suggests, therefore, that caution with regard to one’s spending and borrowing practices should be the motto until such time as there are more reliable indications as to whether the US crisis is near its end or not, because despite some encouraging inflation and interest rate signs, “we’re far from being out of the woods yet”. – I-Net Bridge

Source: Property24