Standard Bank's property book for February 2010 revealed that the rate of decline in the median house price continued to slow down.

The smoothed data yielded a rate of contraction of 1,9% y/y, following a decline of 2,9% y/y in January 2010.

Significantly, the smoothed median house prices over the last five months signified a steady, if slow, improvement in the property market.

The smoothed growth rate for February shows that the value of the median residential properties financed by Standard Bank was R550k, marginally up from January's R545k.

"However, in real terms, using our estimate of the CPI in February to deflate the nominal house price, the decline in real house prices comes to approximately 8,4% y/y from 9,3% y/y in January," Standard Bank said.

"The monthly median values of Standard Bank's property book tend to be very volatile (and exceptionally so this month due to base effects), but the smoothed values show that the rate of decline is diminishing. We have seen a sizeable increase in the number of loans granted, supported by the loosening of credit criteria announced at the beginning of September last year, stronger economic growth and an improvement in household confidence.

"In fact, the number of loans granted increased more than three-fold compared to a year ago. Also heartening – and as an indication of the improving housing market – it appears that that first-time buyers are showing interest in the housing market, while the demand for lower priced properties has perked up," Standard Bank said.

"Also, there is a strategic focus on the affordable housing segment, which increases the number of loans approved at the lower end of the market. The increase in the number of lower-priced houses on our book is biasing our raw median price downwards," it added.

The bank said the nature of the recovery in economic activity and the lack of demand in the early phases of the upswing mean that the property market could possibly be one of the last sectors to improve in 2010. Furthermore, households, who are still under pressure, may find the going tough for most of the year.

"The large electricity tariff increases, their second round effects and possible increases in other administered prices such as municipal rates and taxes are not good news for consumers already stretched to the limit. Also, even though we expect interest rates to remain at current levels to the end of the year, the next move in interest rates is most likely upwards.

"Expectations for stronger growth in the housing market could thus be misplaced. We expect house price growth to emerge from the red in the second quarter of the year and register a growth rate in the 3% - 5% range in 2010," Standard Bank added.

Looking ahead, the bank said that in spite of the economy emerging from recession in Q3 2009 and showing above-expectations growth in Q4, important drivers of household spending in the economy, such as the level of household income, debt and employment, do not point to a rapid turnaround in the housing market.

"Five-consecutive months of lower declines in Standard Bank's median house price indicate that house price growth is improving very slowly but is likely to turn positive by the second quarter of 2010," Standard Bank added.

Elma Kloppers reports that FNB house price index for February showed that house prices were 5,8% up in February this year compared to February last year. According to this index the average house price is now R770,332.

John Loos, property economist at FNB, says this doesn’t mean that the housing market is out of danger as households’ debt-to-disposable income levels remain high, which restrains this sector’s ability to get into further debt to purchase houses. – I-Net Bridge and Sake24

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