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Light at end of the tunnel for home buyers
With the anticipated housing market recovery next year, Standard Bank Economist Johan Botha offers some light at the end of the tunnel for home buyers
The 2010 economic landscape suggests a recovery in the housing market next year, on the back of lower interest rates and expected new credit demand, with the loosening of credit criteria and higher percentage loans of up to 104% that have been introduced.
Having said this, it does not appear that house price growth will turn positive before the second quarter of next year, making a quick turnaround in the housing market improbable. In addition, with the recession increasing the supply of existing homes currently in the market, these will have to be absorbed before a new housing boom and price growth, will take shape.
Indicators suggest that with building cost inflation still running above housing deflation, there will be no imminent recovery in new residential development, which is crucial for the demand-supply balance of homes in the economy, making acquiring an existing home being more affordable in some cases. Furthermore, a sizeable overhang of unsold properties exists. This will constrain prices until such time that normality returns to the market.
The good news is that since the loosening of credit criteria, announced at the beginning of September, the anecdotal property trends confirm that the affordable segment of the housing market is showing signs of life with an increase in the number of loan applications and loans granted as potential buyers return to the market. First time buyers are making use of the opportunity to test the market again as cost inclusive loans are once again being granted to first time home buyers.
On the interest rate front it appears that the downward phase of the interest rate cycle has come to an end and South Africa is expected to see some upward pressure on interest rates. A probable 1.5 percentage points increase during 2010 in the prime lending rate could be seen. However, despite envisaged interest rate increases, housing will remain affordable and mild growth of between 3% and 6% in nominal house prices in 2010 is expected.
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