It's time for the Saturday open thread. Here's a conversation starter: The SA Reserve Bank has cut the repo rate to 14% and people think the worst is over. The Bank of England cut their rate to 1%(!) and everyone there believes the worst is still coming.
11 comments:
I'm not sure anybody really thinks "the worst is over" but it certainly removes a little of the sting?
Interest rates can be a small factor when specific fundamentals are there, but those fundamentals are long gone.
Just one example: Consider the next must have thing as an economic driver. We talking pc's, cellphones, properties, renovation and homewares. There is saturation...the party is over. HDTV aint gonna cut it.
Sure there are plenty of people who dont have such things...but who is going to roll out pc's in Africa and at what price tag?
Oh and by the way in reference to the above...green energy anyone? Watch your headlines for the push...
The Reserve Bank and its chief clown, Tito, have absolutely no clue to what makes a economy tick.
everybody in this country praised Tito and his master, Trevor, for the great job they did in steering SA's economy to a extended period of growth. This is relative as the rest of the world's economy was growing hand over fist.
But now that the storm has hit us these tow terrible twins are running for cover doing a hash job in the process. A good captain shows his colours in a bad weather and its no different when it comes to these two.
SA's economy is about to hit a negative growth rate and the best that the Reserve Bank can do is a paltry 1% drop in interest rates.
I agree that the property market overheated with millions paying top dollar for their homes but rates have to come down to avoid mass repossessions which will hit 150 000 this year alone (up from 50 000 last year).
Tito has a total disregard for the ordinary man in the street and his infatuation with inflation has lead to the economy going bust quicker than anybody can say the word.
Rumour is that Trevor will not be part of Zuma's cabinet and rightly so. Zuma should do the wise thing and hire a real economist who's claim to fame is more than just being able to throw a petrol bomb straight.
This economy needs low rates to stimulate growth and to hell with the Rand devalueing.
Yeah well, most people are guilty of simplistic, linear thinking - along the lines of "if rates go down then it must be good for property" - well, the bad news is that the debt-income ratio on average is still high (75%) and the income group most likely to be in the market for property (R500k to R750k) has a debt-income ratio of 138% - so MAYBE lower rates will have no effect, despite what the THIEVES formerly known as estate agents might say about it
Or am I missing something?
Who really do know an estate agent who has been honest? The one we used when we bought our house had told us that the occupational rent would be open for negotation but when the time came to negotiate the lawyer told us the estate agent was wrong. and this is just one example
"lower rates stimulate the economy?" This is but one variable and will only have a positive impact if certain conditions are met, such as: Net foreign outflows don't accellerate because of lower returns, the ZAR remains stable, Foreign direct investment remains stable at least, High net worth individuals and pensioners don't suddenly earn substantially less (which they do considering what's happened to investment portfolios) etc, etc.
Don't fool yourself, lower rates in isolation mean diddly squat.
The reality is so obvious that most people miss it. The average 3 bed middle income family home costs in the region of 1.3 million... where, with deposits accounted for, the enslaved willingly subjugate themselves to bond repayments in excess of R15k per month in perpetua.
At the max of 30% of gross income, a R15k repayment requires that the bond holder/s earn a gross of R50k per month.
I ask you seriously, how many households earn that kind of money in SA? And anyone who spends more than 20% of gross on bond repayments should seriously seek help with understanding personal finance.
Bottom line is that inflation adjusted real income in SA has been flat to negative since 1997 while property prices have gone up exponentially. This was driven largely by the increase in the middle class and upper middle class numbers. The truth of it is that many, many people took easy access to credit and bought well above their means at maximum leverage.
Is a price tag of 1.3 million for a basic 160 sqm 3 bed cubbyhole sustainable?
I suppose that depends on the collective continued stupidity of the average consumer out there... and his continued access to easy credit and 100% bonds... and there's the rub nuh?
On a generational level it is the damn Baby Boomers who have inflated the house prices to these ridiculous levels. How or where does this leave the Gen X'ers or Millenials who dont have wealthy parents? We have to carry the debt they have run up through bad political and economic choices as well as deal with the inflation. Revolt I say...damn their institutions
Nice,sensible comments here
It's very refreshing to read people who obviously think for themselves
I am so, so tired of listening to the rationale for high property prices when, as the poster above points out, it is so simple as to be overlooked.
When I last tried the argument on someone of "but you need to get a rental yield in excess of the bank rate", the person I was talking to said "but most people don't want to rent out the house so that argument is invalid" - I nearly fell on my back!!!
Keep it up here please - this is the one tiny corner of sanity that keeps my hopes alive for a return to reasonable property prices
Bwahaha, James, I've also heard that argument and it left me stunned to silence I was trying so hard to understand the rationale behind paying any price for the sake of ownership.
Yep, it's all in the yield nuh?
Nowhere else; in absolutely no other asset class will you find an 'investor' borrowing 1.3 million long term at 15% to invest at an annual rental yield of around 5%? That is a very, very high price to pay just so you can call youself a home owner! But, since most 'rational' human beings just do not grasp the progression and regression curves of compounded math, we find people willing to borrow at usurous rates and paying 80% premiums for property.
Every weekend I go check out three properties on Show (lately it's been the same ones week after week) and I never cease to be amazed at how people make their buy decisions on property. I mean, these are the same people who will revolt in the local Woolies over the price of milk and bread who now are willing to seriously hock themselves for 20 years based on 'position, position, position' as a fundamental qualifier? I mean, most of these buyers do not even ask what the previous selling price was or even calculate the under roof purchase price per sqm relative to current building costs.
No wonder developers and builders in SA get away with refusing to provide a detailed bill of quantities and labour rates.
I saw ABSA and FNB's comments on expected recovery of the property market from middle 2009 and that they're already calling a bottom.
Go on Mr Loos, pull the other one!
Here's my take:
1. ABSA has a 140% increase in SMME loan defaults
2. Anglo Platinum just announced 10,000 job cuts. Think ripple effect
3. The credit crunch is here to stay and 10% to 20% deposits are a reality
4. Rental is around 30% to 50% of bond repayments. One or the other eventually has to give and I don't think it's going to be rental
5. The ripple effect of the global situation has not even reached our shores yet. We're in a deflationary spiral (hence lower interest rates) and it's going to continue for some time yet. Yes, inflation is coming, but only after leverage has been shaken out of the system. Those who buck it are going to impoverish themselves by locking into ever increasing negative equity on the way down and at the bottom will suddenly realise that they are cashless and facing rampant inflation.
Maybe my views are extreme, but history bears me out and why would this time be different?
Every credit crunch, every banking crisis in history has ended in deflation and depression. Creating liquidity does not solve the problem. Liquidity in the form of credit is exactly what created the problem in the first place and replacing the faux credit, that is now lost, with a printing press is the ultimate pipe dream since the banks are not extending that liquidity in the form of loans. All the central bankers are doing is to compound and extend the problem by setting the stage for eventual hyperinflation. Printing money is easy, pulling that M3 supply back out of the system is not so easy.
For an economy to operate, consumers must spend. In one company alone 10,000 people are going to lose their jobs this year. With a +70% household debt ratio, where are SAfricans going to get money to spend to support inflation? Are they going to borrow more when the banks know full well we're entering a deflationary spiral (proven by their incredible tightening of credit qualifications).
Here is what the economists don't understand and what the bankers fear: Inflation is about money and deflation is about fear.
Watch the market reaction to the US stimulus bill this week. Buy on rumour and sell on fact. It's the Fed's last silver bullet and the powder's wet.
nuff said!
Joe
That's the best post I have read in the last couple of years -anywhere, and I've read a LOT!
Thanks
Why not hop over to www.page88.co.za (trader's site) and join in the fun?
Regards
James
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