Since the amount of property- and financial news has slowed from a trickle to zero I thought I'd share these, cherry-picked from Absa's latest reports. Somehow these didn't sneak onto the front page of the Sunday Times. Gee, I wonder why.
"The ratio of household mortgage debt to disposable income increased slightly from 47,6% in the third quarter of 2008 to 47,9% in the final quarter, largely as a result of markedly slower growth in nominal disposable income in the fourth quarter compared with the third quarter of last year."
So we're still getting deeper into debt, and the job losses haven't even started in earnest yet...
"In view of a still slowing housing market and prevailing strict lending criteria, mortgage advances growth is expected to taper off further in coming months."
Fewer mortgages = fewer buyers = you know the rest.
"The construction of new flats and townhouses increased markedly on a year-on-year basis in January-February this year."
We've got years of inventory standing unsold, there's less credit than ever, and STILL they're building! First time buyers priced out of the market need to get down on their knees and thank God for the greed and stupidity of these developers who don't know they're building themselves out of business.
"With the economy believed to be in a recession, and many households expected to experience financial strain as a result of probable further job losses in many sectors of the economy, the demand for new housing is set to remain depressed in the rest of the year, despite declining interest rates."
That "in the rest of the year" is classic euphemism: they can't quite bring themselves to say "for the rest of the year", but that's clearly what they're saying.
A question to the more economically savvy CTP Bubblers out there: what happens when the oil price rebounds to $70 or $80 as it must as soon as the US "green shoots" start appearing? Some doomsters are talking $200 a barrel (because production capacity has slumped with falling prices, so we're behind the curve even more than before) but let's just say we get back to par around $75? Big inflation in SA, forced IR hikes, a new wave of disaster for property?
Oi! anonymous? If yer go'an get personal wifout havin any supoiting facts, then at least have the gumba to register and give beancounter a mail address or sumtin so he can send Fast Eddie and Lenny round to have a 'chat' wif ye, yer schmuck
'Years of inventory standing unsold' is a nice sensationalistic cliche. Unless it refers to poor quality housing constructed by bad business or bancruptcy, but these have been around for decades - nothing to do with the housing market.
Oil was $80 in 2005 and did nothing to curb fantastic growth in the property market. Even at $100 in 2010 oil price will do nothing to the market.
High interest rates are not disaster to property, quite the opposite. It means increased rental yield for to property owner who is perfectly hedged againts inflation. Bring on hyper-inflation!
Don't worry about predicting future house prices - look at the score board. Actual sales figures in several W. Cape suburbs have shown steady increases, even if theses increases are not as big as the previous two years (they will again...soon). In fact, two or three areas have shown inflation +0.3% every month over the last 10 moths (economically worst months). These are not average house prices, but actual selling prices of similar houses % apartments in the same area.
Peter - re my sensationalist cliche about unsold inventory. I stand to be corrected, but if, for example, the Strand has 1,000 properties on the market, and the average rate of sales in the Strand for the last three months (according to the deeds office) is 30 properties a month, doesn't that mean that it's going to take 33.3 months to sell those properties if conditions stay as they are now?
"Oil was $80 in 2005 and did nothing to curb fantastic growth in the property market." You say fantastic growth, I say a once-a-generation bubble fueled by banksters and economic policy that is now dead in the water. Peter, let's be honest and admit that it would have taken a nuclear war to slow the property market in 2005. Hell, estate agents might even have tried to flog houses as bunkers, and started a new bubble.
"High interest rates are not disaster to property, quite the opposite. It means increased rental yield for to property owner who is perfectly hedged againts inflation. Bring on hyper-inflation!" Peter, again you're thinking like a landlord instead of a human being. You don't understand that the people you're looking forward to squeezing have limits, and hyperinflation pushes them over those limits. But frankly anyone who wishes for hyperinflation clearly hasn't ever experienced it, so I'm going to assume you're just being dramatic to make your point.
Re your second post: interesting re the increase in W. Cape suburbs. The 0.3% MOM increase - is that nominal or real?
LOL Dont worry, Beanz is one of those bitter renters that either cant afford to buy or waited too late... now he wakes up every morning wishing that he can get that 5 bedroom apartment in Clifton for R500k!
I told him in a previous posts... I dont need analysts to tell me what to do with my money LOL I have a mind of my own... but then again, not everyone can think for themselves...
Beanz, thanks for sharing... lucky you did not invest in property. I'm sure your ASSets are counting their blessings... cash baby, cash! :LOL:
Bean Counter, rest assured: the value of property is a function of rental income. The two are way out of whack and house prices will come down in the not-too-distant-future.
There's a reason the banks are now demanding 20-30% deposits on mortgage loans: they're expecting the market to fall by an equivalent amount.
Property is a consumption good, not an investment. Folks that have overpaid for a house from 2005 onwards (just about everybody who bought a home from 2005 on overpaid) will take a hit. In fact, they already have.
Your argument of a house being a perfect hedge against inflation is just ridiculous. If you price the ABSA house price index in USD price of gold, the average house returned 0% from 2000-2009. If you price the index in ZAR price of gold, you got a holding period return of -33% from 2000-2009. So the value of your house in terms of real money has come down.
Be careful which reading of price inflation you believe. We all know inflation is higher than the government's CPI reading.
I'm not saying gold is an investment - but it gives one a better idea of the changing purchasing power of your currency.
BC, I do not think that there will be "green shoots" in the US economy for a long time. Where are the fundamentals to support? The commercial property bubble has just started to pop there, smaller banks are still being taken over or merged...The recent rally is nothing but a bear market rally and it will not last...pencil in October and November for the next wave down.
'Your argument of a house being a perfect hedge against inflation is just ridiculous.' Coming from someone who attempts to compare 'market value' (and that in $US terms!) of 'average' property prices to the actual gold price ... I rest my case. That includes the suggestion that banks determine their lending policy on the real estate market - please!
@ Beancounter Then you will be corrected: 1000 props in the pool - don't look at the pool size, look at the flow (in and out). The dynamic is completely different.
I am not thinking like a landlord! I will not 'squeeze till limit'; I rent as well, so please do not assume that I am the rich landlord from hell. But the rental market has underperformed (see CTPB previous posts and graphs!!!)for years and property owners will now start recovering this 'subsidy' for the next couple of years.
Who says there is a disconnect between property prices and rentals? If they were any closer, then nobody would rent. We would all rather buy for less than it would cost to rent.
ok disconnected or not, rental prices almost always reflect what people can afford, just in contrast to these strange loans people get. When someone rents, then the person looks at his monthly salary and sees he has xyz available, then he will search for it. With loans I think it is a bit different as we saw in the US (I guess it was similar here before the credit act). Banks offered mortgages to a person with the hope that sometime in the future the person would earn enough to be able to pay it off. So the monthly payment starts low and then grows to exorbitant amounts. That is just criminal and that blows house prices out of proportion. Just my opinion on how it works.
Peter you need to understand what inflation is. Inflation is deficit spending, interest rates below the free-market rate, and a constant increase in the money supply. This erodes the value of fiat currencies. When many governments do this at the same time (i.e. inflate), paper currencies lose value relative to real money (i.e. gold, silver). This is why you need to look to the market price of real money, not fiat currencies, to gauge extent to which governments have inflated. Once you grasp this concept and realise the statssa’s CPI figures don’t capture the extent of actual inflation, you can begin to adjust the returns of property to see if it’s hedged against inflation.
IN the past banks didn’t determine their lending policy on the real estate market. You’re quite right. Prices just keep going up, remember? Well, sure they will for a couple of years if you pump up the money supply to push down interest rates. Banks know very well they’re exposed as part of the fractional reserve banking system, and now they have begun to increase equity ratios to protect against a further decline in real estate market. Cheap credit to the property sector is over for a couple of years. Household savings need to increase before we see a sustained recovery in fundamentals of the economy, and hence real estate market.
Since when do prices reflect what people can afford? Every second person is living above his/her means.
There will always be masses of people who pay more for rent than what they can afford. Just as there will always be more than enough people who drive cars they cannot afford, eat out more than they should and buy more expensive gifts for loved ones than what they can afford.
If you are prudent and have remained, or scaled down to, below your means, then you are one of a very small group. Most won't.
CTPB regularly tries to show how low rentals are or/and how (carefully selected and exceptional examples of) prices have and are falling dramatically. While it's clear that ASKING prices have come down ON AVERAGE, there is absolutely no chance that people waitng for handouts will get property for nothing.
If you couldnt find a bargain by now, then you have missed it.
Sounds like you're suggesting gold standard again ...
Anyway re. inflation - do you honestly believe that the price of property in SA will remain low when every other consumable is increasing in price (maybe even in value - seeing that we are a fiat country, for now). And are really suggesting that rentals will come down when rates, taxes, material, labour, CGT, risk etc. have such a fundamental and huge influence?
Nope not suggesting rental price will necessarily come down. The cost of buying will come down to be more in line with what it costs to rent. The adjusment will not come from lower interest payments, but a decline in the face value of property.
You can only live above your means for so long, eventually the bills come due.
Price of property will come down as people realise it is not worth while going up to their teeth in debt with the hope of eventually profiting from the sale. Effectively what people did was they lived outside their means with the belief that they could eventually sell their homes at a profit, validating the excessive spending and consumption. So the equity in their homes was their savings. But the problem with this is credit flows from savings, savings doesn't come from credit.
Expect an increase in rental prices, but bigger adjustment from price decline of homes as the malinvestment works itself out. It seems our central bank (up to this point) will let the market function and let prices drop.
On your last point on price inflation of other consumer goods (before I'm off for the weekend). The real estate sector becomes cyclical when over-investment takes place, not to mention credit cycle. Other consumer goods (excl. luxury goods) are price inelastic, and also their run-up was much slower than the housing market. In actual fact, fundamentals for agricultural produce keeps improving during the crisis; as supply continues to shrink and demand continues to grow - points to further price increases ahead. The reverse is happening in the housing market.
again, I think there is a fundamental difference between rental price and purchasing price reflecting affordability.
The rental price is much closer to what people can afford. Just try to go to your Bank and say I want to rent this house for 20.000 Rand but I just earn 25.000, give me a loan so I can afford to rent.
Transfer this scenario to a loan 2 years ago and you got your loan. Although it was clear that you would only be able to pay pack the loan when your salary increases in the future or the house would be worth much more in the future. (You could even argue the latter one, since it is just a virtual value and you would need to sell the house to pay back the loan). So buying beyond your means was a bet, like buying stock options. It inflates prices artificially.
Not a fundamental difference in that way at all. People don't go to banks in that way for credit to blow vast amounts of money on other decadences and consumables either. Yet they do it, just as they do on renting places that are too expensive.
Not being able to afford rent is as much a question of choosing luxury over affordability (and justifiying it as a basic need) as the DSTV subscriptions, cell phone subscriptions, two cars, holidays and clothes. There is always an more affordable option... but that's not as nice, is it.
So I stick to my point - rentals are very affordable in SA at the moment and will increase substantially to make up for the last few years of property boom.
Sad thing is, and I have to agree with Becks here, that cycles create unsustainable peaks and then troughs of demand and this only means one thing: Shortages of safe, decent housing in the very near future.
I cant wait until property bears get their nuts handed to them on a plate.
Their self rightous 'i told you so ' attitude stinks of arrogance and when the market bottoms out and prices start to show real growth again, then all these doomsday predictions will all be pie in the sky.
Some may feel squeamish about eating it, but rabbit has a fan base that grows as cooks discover how easy they are to raise — and how good the meat tastes.
25 comments:
Since the amount of property- and financial news has slowed from a trickle to zero I thought I'd share these, cherry-picked from Absa's latest reports. Somehow these didn't sneak onto the front page of the Sunday Times. Gee, I wonder why.
"The ratio of household mortgage debt to disposable income increased slightly from 47,6% in the third quarter of 2008 to 47,9% in the final quarter, largely as a result of markedly slower growth in nominal disposable income in the fourth quarter compared with the third quarter of last year."
So we're still getting deeper into debt, and the job losses haven't even started in earnest yet...
"In view of a still slowing housing market and prevailing strict lending criteria, mortgage advances growth is expected to taper off further in coming months."
Fewer mortgages = fewer buyers = you know the rest.
"The construction of new flats and townhouses increased markedly on a year-on-year basis in January-February this year."
We've got years of inventory standing unsold, there's less credit than ever, and STILL they're building! First time buyers priced out of the market need to get down on their knees and thank God for the greed and stupidity of these developers who don't know they're building themselves out of business.
"With the economy believed to be in a recession, and many households expected to experience financial strain as a result of probable further job losses in many sectors of the economy, the demand for new housing is set to remain depressed in the rest of the year, despite declining interest rates."
That "in the rest of the year" is classic euphemism: they can't quite bring themselves to say "for the rest of the year", but that's clearly what they're saying.
A question to the more economically savvy CTP Bubblers out there: what happens when the oil price rebounds to $70 or $80 as it must as soon as the US "green shoots" start appearing? Some doomsters are talking $200 a barrel (because production capacity has slumped with falling prices, so we're behind the curve even more than before) but let's just say we get back to par around $75? Big inflation in SA, forced IR hikes, a new wave of disaster for property?
@beancounter- aaaaaaaaaaah shuddup ye prick. You wouldnt know a good investment even if shagged your wife on the bed next to you.
Oi! anonymous? If yer go'an get personal wifout havin any supoiting facts, then at least have the gumba to register and give beancounter a mail address or sumtin so he can send Fast Eddie and Lenny round to have a 'chat' wif ye, yer schmuck
'Years of inventory standing unsold' is a nice sensationalistic cliche. Unless it refers to poor quality housing constructed by bad business or bancruptcy, but these have been around for decades - nothing to do with the housing market.
Oil was $80 in 2005 and did nothing to curb fantastic growth in the property market. Even at $100 in 2010 oil price will do nothing to the market.
High interest rates are not disaster to property, quite the opposite. It means increased rental yield for to property owner who is perfectly hedged againts inflation. Bring on hyper-inflation!
Don't worry about predicting future house prices - look at the score board. Actual sales figures in several W. Cape suburbs have shown steady increases, even if theses increases are not as big as the previous two years (they will again...soon). In fact, two or three areas have shown inflation +0.3% every month over the last 10 moths (economically worst months). These are not average house prices, but actual selling prices of similar houses % apartments in the same area.
Peter - re my sensationalist cliche about unsold inventory. I stand to be corrected, but if, for example, the Strand has 1,000 properties on the market, and the average rate of sales in the Strand for the last three months (according to the deeds office) is 30 properties a month, doesn't that mean that it's going to take 33.3 months to sell those properties if conditions stay as they are now?
"Oil was $80 in 2005 and did nothing to curb fantastic growth in the property market." You say fantastic growth, I say a once-a-generation bubble fueled by banksters and economic policy that is now dead in the water. Peter, let's be honest and admit that it would have taken a nuclear war to slow the property market in 2005. Hell, estate agents might even have tried to flog houses as bunkers, and started a new bubble.
"High interest rates are not disaster to property, quite the opposite. It means increased rental yield for to property owner who is perfectly hedged againts inflation. Bring on hyper-inflation!" Peter, again you're thinking like a landlord instead of a human being. You don't understand that the people you're looking forward to squeezing have limits, and hyperinflation pushes them over those limits. But frankly anyone who wishes for hyperinflation clearly hasn't ever experienced it, so I'm going to assume you're just being dramatic to make your point.
Re your second post: interesting re the increase in W. Cape suburbs. The 0.3% MOM increase - is that nominal or real?
Anon 1:
LOL Dont worry, Beanz is one of those bitter renters that either cant afford to buy or waited too late... now he wakes up every morning wishing that he can get that 5 bedroom apartment in Clifton for R500k!
I told him in a previous posts... I dont need analysts to tell me what to do with my money LOL I have a mind of my own... but then again, not everyone can think for themselves...
Beanz, thanks for sharing... lucky you did not invest in property. I'm sure your ASSets are counting their blessings... cash baby, cash! :LOL:
I notice that O'Shea Properties has been liquidated recently. They didn't last too long after taking over Engel & Völkers.
Bean Counter, rest assured: the value of property is a function of rental income. The two are way out of whack and house prices will come down in the not-too-distant-future.
There's a reason the banks are now demanding 20-30% deposits on mortgage loans: they're expecting the market to fall by an equivalent amount.
Property is a consumption good, not an investment. Folks that have overpaid for a house from 2005 onwards (just about everybody who bought a home from 2005 on overpaid) will take a hit. In fact, they already have.
Your argument of a house being a perfect hedge against inflation is just ridiculous. If you price the ABSA house price index in USD price of gold, the average house returned 0% from 2000-2009. If you price the index in ZAR price of gold, you got a holding period return of -33% from 2000-2009. So the value of your house in terms of real money has come down.
Be careful which reading of price inflation you believe. We all know inflation is higher than the government's CPI reading.
I'm not saying gold is an investment - but it gives one a better idea of the changing purchasing power of your currency.
BC, I do not think that there will be "green shoots" in the US economy for a long time. Where are the fundamentals to support? The commercial property bubble has just started to pop there, smaller banks are still being taken over or merged...The recent rally is nothing but a bear market rally and it will not last...pencil in October and November for the next wave down.
'Your argument of a house being a perfect hedge against inflation is just ridiculous.' Coming from someone who attempts to compare 'market value' (and that in $US terms!) of 'average' property prices to the actual gold price ... I rest my case. That includes the suggestion that banks determine their lending policy on the real estate market - please!
@ Beancounter
Then you will be corrected: 1000 props in the pool - don't look at the pool size, look at the flow (in and out). The dynamic is completely different.
I am not thinking like a landlord! I will not 'squeeze till limit'; I rent as well, so please do not assume that I am the rich landlord from hell. But the rental market has underperformed (see CTPB previous posts and graphs!!!)for years and property owners will now start recovering this 'subsidy' for the next couple of years.
It was PPI +0.3% i.e. 0.3 % real m/m.
Who says there is a disconnect between property prices and rentals? If they were any closer, then nobody would rent. We would all rather buy for less than it would cost to rent.
ok disconnected or not, rental prices almost always reflect what people can afford, just in contrast to these strange loans people get. When someone rents, then the person looks at his monthly salary and sees he has xyz available, then he will search for it.
With loans I think it is a bit different as we saw in the US (I guess it was similar here before the credit act). Banks offered mortgages to a person with the hope that sometime in the future the person would earn enough to be able to pay it off. So the monthly payment starts low and then grows to exorbitant amounts. That is just criminal and that blows house prices out of proportion.
Just my opinion on how it works.
Peter you need to understand what inflation is. Inflation is deficit spending, interest rates below the free-market rate, and a constant increase in the money supply. This erodes the value of fiat currencies. When many governments do this at the same time (i.e. inflate), paper currencies lose value relative to real money (i.e. gold, silver). This is why you need to look to the market price of real money, not fiat currencies, to gauge extent to which governments have inflated. Once you grasp this concept and realise the statssa’s CPI figures don’t capture the extent of actual inflation, you can begin to adjust the returns of property to see if it’s hedged against inflation.
IN the past banks didn’t determine their lending policy on the real estate market. You’re quite right. Prices just keep going up, remember? Well, sure they will for a couple of years if you pump up the money supply to push down interest rates. Banks know very well they’re exposed as part of the fractional reserve banking system, and now they have begun to increase equity ratios to protect against a further decline in real estate market. Cheap credit to the property sector is over for a couple of years. Household savings need to increase before we see a sustained recovery in fundamentals of the economy, and hence real estate market.
Since when do prices reflect what people can afford? Every second person is living above his/her means.
There will always be masses of people who pay more for rent than what they can afford. Just as there will always be more than enough people who drive cars they cannot afford, eat out more than they should and buy more expensive gifts for loved ones than what they can afford.
If you are prudent and have remained, or scaled down to, below your means, then you are one of a very small group. Most won't.
CTPB regularly tries to show how low rentals are or/and how (carefully selected and exceptional examples of) prices have and are falling dramatically. While it's clear that ASKING prices have come down ON AVERAGE, there is absolutely no chance that people waitng for handouts will get property for nothing.
If you couldnt find a bargain by now, then you have missed it.
Sounds like you're suggesting gold standard again ...
Anyway re. inflation - do you honestly believe that the price of property in SA will remain low when every other consumable is increasing in price (maybe even in value - seeing that we are a fiat country, for now). And are really suggesting that rentals will come down when rates, taxes, material, labour, CGT, risk etc. have such a fundamental and huge influence?
Nope not suggesting rental price will necessarily come down. The cost of buying will come down to be more in line with what it costs to rent. The adjusment will not come from lower interest payments, but a decline in the face value of property.
You can only live above your means for so long, eventually the bills come due.
Price of property will come down as people realise it is not worth while going up to their teeth in debt with the hope of eventually profiting from the sale. Effectively what people did was they lived outside their means with the belief that they could eventually sell their homes at a profit, validating the excessive spending and consumption. So the equity in their homes was their savings. But the problem with this is credit flows from savings, savings doesn't come from credit.
Expect an increase in rental prices, but bigger adjustment from price decline of homes as the malinvestment works itself out. It seems our central bank (up to this point) will let the market function and let prices drop.
On your last point on price inflation of other consumer goods (before I'm off for the weekend). The real estate sector becomes cyclical when over-investment takes place, not to mention credit cycle. Other consumer goods (excl. luxury goods) are price inelastic, and also their run-up was much slower than the housing market. In actual fact, fundamentals for agricultural produce keeps improving during the crisis; as supply continues to shrink and demand continues to grow - points to further price increases ahead. The reverse is happening in the housing market.
again, I think there is a fundamental difference between rental price and purchasing price reflecting affordability.
The rental price is much closer to what people can afford.
Just try to go to your Bank and say I want to rent this house for 20.000 Rand but I just earn 25.000, give me a loan so I can afford to rent.
Transfer this scenario to a loan 2 years ago and you got your loan. Although it was clear that you would only be able to pay pack the loan when your salary increases in the future or the house would be worth much more in the future. (You could even argue the latter one, since it is just a virtual value and you would need to sell the house to pay back the loan).
So buying beyond your means was a bet, like buying stock options. It inflates prices artificially.
That would be almost impossible with renting.
Not a fundamental difference in that way at all. People don't go to banks in that way for credit to blow vast amounts of money on other decadences and consumables either. Yet they do it, just as they do on renting places that are too expensive.
Not being able to afford rent is as much a question of choosing luxury over affordability (and justifiying it as a basic need) as the DSTV subscriptions, cell phone subscriptions, two cars, holidays and clothes. There is always an more affordable option... but that's not as nice, is it.
So I stick to my point - rentals are very affordable in SA at the moment and will increase substantially to make up for the last few years of property boom.
Sad thing is, and I have to agree with Becks here, that cycles create unsustainable peaks and then troughs of demand and this only means one thing: Shortages of safe, decent housing in the very near future.
I can't WAIT to see these property bulls get their nutz handed to them on a plate!
Really, I can't! I wish it would happen today, already!
When I read these sickening posts that try to justify over-priced property I get mad, mad, mad!
F*ck you, I say!
I cant wait until property bears get their nuts handed to them on a plate.
Their self rightous 'i told you so ' attitude stinks of arrogance and when the market bottoms out and prices start to show real growth again, then all these doomsday predictions will all be pie in the sky.
I say fuck you too!
Some may feel squeamish about eating it, but rabbit has a fan base that grows as cooks discover how easy they are to raise — and how good the meat tastes.
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