The South African residential market is going through a very challenging time, the worst experienced in many years, with prices in 2010 dropping to three percent below 2004 levels, but recovering since then by 8.5 percent.
However, with all its problems the SA property sector is not in the dire straits being experienced by this sector in the USA, the UK, many parts of Europe and Australia.
South African residential house prices have increased some 10.5 percent since the low point of 2009 and SA residential property has come back from a 40 percent reduction to a point where it has now risen to about eight percent above the 2004 level.
This was according to Bill Rawson of Rawson Properties who recently returned from a trip to the USA.
The main trends in the US housing, says Rawson, are:
- Prices of distressed sales (as here in South Africa) are still up to 50 percent down on the previous high levels, while average prices of second-hand homes are between 25 percent and 30 percent down on the previous levels.
At the end of the first quarter this year, despite signs of a potential recovery last year, US home prices were still a massive 5.5 percent down on the previous quarter and as yet there is no sign of an upturn.
The one bright spot on the market is the new house market where some price inflation (at approximately three percent) have been achieved despite a big drop-off in overall production from 900 000 houses per annum to 300 000 houses per annum.
- At 4.5 percent, the average US mortgage interest rates are still at record low levels — previously they were at 8.5 percent for many years. This, along with exceptionally low prices, should be stimulating sales, but from the discussions he had there appears to be an ongoing fear and lack of confidence in the housing market that is still holding back those buyers who can obtain bonds. This lack of confidence, he said, has shown itself in statements that the property market could drop a further five to 20 percent before a full recovery becomes evident.
Should the Federal Reserve abandon its QE3 relief programme, most developers and estate agents see US interest rates rising to seven percent plus in the next two to three years.
- The difficulties currently encountered by South Africans in getting mortgage bonds are equally prevalent in the USA and, in fact, probably worse there than here. One major US residential developer, Bob Toll of Toll Bros, was reported in USA Today as saying, "If you don’t need a loan," i.e. if you are financially very strong, "you get it in a minute, but any mortgage applicant aiming for less than a 20 percent deposit is still likely to struggle".
- As in South Africa, the rental market has benefited greatly from the financial crisis; slow sales have resulted in increased applications to rent and improved rental prices.
- There is a clear understanding in government and business circles that as long as the housing market remains stagnant, so will the US economy. Toll was quoted as saying that this sector probably employs more than any other in the USA and therefore requires all the encouragement it can get.
- Negative feelings about the potential of the USA recovery miss the mark because they do not take into account the huge entrepreneurial drive and skills for which the country has always been well-known and which no other country — certainly not the fast-growing China — possesses to anything like the same degree. This should ensure that the USA remains a dominant economy for at least a further two decades.
Quoting statistics from the respected Canadian economy analysts, Scotia Plaza, Rawson said that the UK housing market is also as yet showing no signs of recovery.
Article continues on page two: how other housing markets are doing compared to South Africa...