Now for the good news. . .

Homeowners are anxiously seeking signs that the property market downslide is levelling off.

Unfortunately, there are mixed signals from analysts, but there are more rays of light than black clouds.

A number of property sector analysts are slowly reaching the conclusion that national house price inflation has finally bottomed, or is levelling off. Furthermore, there are signs that housing is at last becoming more affordable. However, there are still some economists who consider that a significant shift will only become apparent towards the end of the year or early in 2010.

Absa's August report says that house price deflation is near the lower turning point on a year-on-year basis, while month –on- month deflation slowed down further in July after bottoming in March this year.

The report forecasts an annual drop in house prices for 2009 of a nominal 10%, which in real terms (allowing for inflation) is around 3,5%.

As a result of interest rates being cut by 500 basis points since December last year, when it was 15,5%, monthly mortgage repayments have dropped by more than 20% compared with December. Over the same period, nominal house prices continued to fall, although at a progressively slower rate. These two ratios, compared with household disposable income, suggest that housing in effect is becoming more affordable.

Lightstone's house price index shows a slight upward trend in house price inflation, which it describes as "encouraging". But while Lightstone warns that due to the volatility of monthly data, it is not prudent to make extrapolations based on this, it suggests: "Since the trend has been upward for several months, there does seem to be growing evidence that national house price inflation may have bottomed out."

In contrast to "average house price" indices, as used by most of the banks, Lightstone uses a "repeat sales" index which provides a measure of the actual price inflation of houses which have transacted twice within a particular period of time. The main benefit of this, argues Lightstone, is that it is less influenced by the mix of transacting properties. The method is used by many international residential property price indexers, including the Office of Federal Housing Enterprise Oversight (OFHEO) in the United States.

FNB's House Price Index continued to decline in July, but, says the bank's property strategist John Loos, "there is some hint that the rate of decline is starting to diminish."

Loos continues: "It would be premature based on one data point, to conclude that this is the start of a sustainable improving trend back out of house price deflation, but certain economic events do lead to the possibility that this could be the case."

FNB, he says, is starting to see some improvement in house loan arrears, while experiencing a mild increase in transaction volumes in recent months.

This increased activity and growing positive sentiment in the residential market is corroborated by estate agents surveyed by the bank.

Less sanguine is Standard Bank. Its property book for the first seven months of 2009 showed an average monthly decline of 3,8% in its median house price, adding that the July trend confirmed that median house prices are still declining and that the weakness in the property market is set to continue. It calculates the decline in real house prices to approximately 11,7%, adding: "The overall growth in the economy, the level of household income and debt as well as the medium-term economic and financial outlook, are such that a clear and immediate improvement in the housing market is unlikely. The best that we can hope for is for price declines to stabilise towards the end of the year as the recent interest rate cuts work their way through the economy and overall sentiment improves."

The bank argues that it cannot be expected that the housing market will flourish when the economy is under such strain. "Furthermore, about a third of South Africans with impaired credit records are more than three months in arrears. With house prices still declining, the wealth base of households is compromised, putting further strain on them."

Gloomy stuff! Nevertheless, a general consensus appears to be, among agents countrywide, that sentiment is improving, as is activity and general interest in residential property. To help it along the upward path, a freeing up of property finance by the big mortgage lenders would make all the difference .

Interesting too is an analysis of the market segments. Absa reports that the luxury market has held up well, whereas the affordable (cheapest) segment has suffered the greatest decline. This conclusion is also reached by Lighthouse and FNB.

The luxury and super-luxury market appears to have been generally inured from the ravages of economic pressures. Absa's stats show that the average nominal price of luxury houses (over R3,1m up to R11,5m) continued to rise in the second quarter of the year by 4,4% year-on-year (y/y). "Prices in the luxury segment have performed better in recent quarters than those in the middle segment, where nominal prices dropped in all categories - small houses (80-140sqm) –4,1% y/y; medium houses (141-220sqm) –2,7% y/y; and large houses (221-400sqm)– 1,1%." This, the bank's property economist Jacques du Toit adds, "may be the result of the upper end of the market to some extent being less affected by trends in economic indicators such as inflation, interest rates, employment and income."

On a regional basis, as one would expect, house price trends have varied considerably. Coastal properties overall have been hit hard with only the southern part of the Western Cape's coast and the KZN south coast showing a degree of positive price growth.

Laurie Wener, PGP's for the Western Cape Metro, comments: "In the top end brackets of R12m to R15m we are seeing steady interest from buyers looking for good properties and good deals. At the very top end there is still a small but steady stream of buyers with cash who are driven mainly by the desire to find the perfect property to suit their own individual lifestyle and who are prepared to pay top dollar for it."

FNB's Property Barometer shows that Johannesburg's mild recovery is continuing. According to John Loos the Johannesburg Metro has the highest average price level of the six major metros and is believed to be the least affordable on a per property basis. He adds however: "Widespread financial stress is causing a property oversupply on its market."

The barometer also rates Cape Town as the weakest of the six regions, but adds the caveat that seasonal factors are probably the cause. Interestingly, foreign buyers – particularly those from Africa – are playing an increasing role. The Cape Metro is reckoned to have one of the highest average price levels of the six metros, it adds.

Foreign buying, again African buyers, is also a feature of the property market in the eThekwini Metro. There, with the possible exception of Durban, oversupplies in the market remain significant, says FNB. This has resulted in widespread price decline across much of the eThekwini region. The former black townships still showed the best price inflation of all the regions up until the end of the second quarter, but the rate of deceleration is now rapid, the barometer reports. Traditionally strong Indian areas have been showing similar weakness to the former white areas.

Source: Pam Golding Properties' Intellectual Property Magazine

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