The steady deterioration in house prices continued in April, according to FNB's House Price Index released on Monday.
This was a result of a sizeable oversupply that had built-up in the residential market.
The number of owners trying to sell houses due to financial pressure was a key driver of the oversupply.
According to property economist John Loos, the April FNB House Price Index had reached double-digit year-on-year average house price deflation for the first time, to the tune of -10,2%.
This put the average house price level back to the level at the end of 2006, Loos said.
04 May 2009
House Price Drop Officially Hits -10%
House prices continue to deteriorate
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35 comments:
Oi! CTPB, you seriously need to moderate the site, or else enforce registration so retards like anon above can be squashed like BUGZ!
On another note. I'm quite amazed how FNB goes from one extreme to the other, don't know if I really believe all this? Loos has for years spewed the buy, buy, buy mantra and now he does an about turn? No wonder RMB shares have done such a nose dive.
The FNB index is more smoothed than the SBK one and at -10% (though they don't say if it's m/m or y/y) that's quite disconcerting. If it's really dropping this fast, and considering the nature of a smoothed curve, then we're in for a bit of a shocker.
Good grief! Not often the M&G get's it all wrong. But to their credit, they're quoting a SAPA article.
Over supply? What over supply? There ain't no over supply! BS man! There's NO over supply of property you eejits! Most SAfricans can't afford their rent, let alone their bonds! Once again the economists are smoking the lawn! The only over supply is Peter's conviction that prices in Pamville are priced right! There's no shortage of buyers in this market, there's just a shortage of buyers at 2.9 bars for 260sqm in Developerville at the other end of the 'Death Race' beltway, and next door to a 'mall' nogal!
Here's your truth Pete not matter how much you rant and rave about 'fair value' The cash, she stays in my pocket! And that's the only truth out there right now. When will you get it?
Not sure I get you, Joe. But to answer your question, it's not difficult. You can convince me with data, simple unmanipulated quantitative data. Like the price band you boast about (but never supply or source).
Materials and labour cost what they cost. And, unlike the sentiment-blown ALSI (up 4%) of yesterday, that's what you pay for a newly built home; even in your nick of the woods. And even if S.West is not your cup of tea, the example provides data, it's based on fact, unlike the reasons for your personal preferences in areas.
Why don't you stick to the (mostly) factual basis of your earlier comments? They made sense.
SEEFF Agent,
This site is most interesting. I have been a property agent for almost ten years now and let me tell you, business was good. There is a huge 'slump' now, but while we agents want property to keep its value, what we want more is for property to change hands. I still get my take if property A goes for 2.5 bars or .5 bars. Pretty soon there will be PLENTY of property changing hands, at deflated prices, but I will still get my commish! I just wanted all you haters to know that.
Hey Pete? If you ever wondered about the motives of your friendly neighbourhood estate agent, I trust you now have your answer. Don't blame 'em, they're just making a living like the rest of us ok? But I don't think 'SEEFF' represents the average hard working agent anyway.
Hey SEEFF! Nice to hear from the great unwashed for a change except I seriously doubt you're an agent, or an even half successful one, even if you are. A smart agent wouldn't admit what you just did, it speaks volumes. The only 'haters' round here are the ones who spout profanities and generally lack the vocabulury to eloquently express their thoughts. And then, of course, there's Pete.
Frankly, after the last jobs and car sales figures, even yours truly is starting to get really worried as things are not looking good. Our economy is imploding at a rather prodiguous rate and I seriously doubt John Loos et al have a remote grasp of what's going down.
Here's one by Lew Geffen posted on 5 May 09 and entitled Buy property within 9 months – or weep
... now seriously, as an agent, maybe you can bring some balanced perspective to this? When ever did the good Mr Geffen warn that prices would 'plummet'. Sure, he said a while back we would see a correction, but I'm not sure he ever used the word plummet? Do correct me if I'm wrong. And this view is based on 'building plan statistics'??? If I've ever seen waffle in my life, then this article truly represents the biggest load of desperate crock I've ever seen!
Now as to commissions: Zip the 'agent-speak' SEEFF, most of the bloggers here understand economics and are quite capable of building pricing models ... the comm on 0.5 bar is really not the same as the comm on 2.5 bar nuh? You'll need to move some serious 0.5 bar inventory just to keep even with that one 2.5 bar sale. Where are your buyers right now SEEFF? Notwithstanding that, I sure don't begrudge you making a living as I'm pretty certain that most of us SAfricans are going to be eating dog biscuits for a while. Maybe time to downgrade that Beemer SEEFF...
Property for sale is being withdrawn due to interest rate cuts. Owners of those that are still for sale can keep up the repayments and negotiating lower prices have become very difficult.
Add to this the fact that the average property has come down more than 10%, and you find that oversupply will very soon be followed by shortages.
The government will, in its attempt to boost the economy, create another bubble. The price of everything is rising and property will follow. It's happening all over the world and it will happen here - especially here, because SAs inflation remains high and is not the only and main target when interest rates are considered.
Hey Pete? Sorry, nearly forgot to answer you question. I've been looking for a really neat price band model I saw recently for some of the US demographics but I just canot find it in order to give you a good reference to a workable model. It explains the concept very well. Anyway, at least I can suggest this: There's no cut and dried method. Let's forget real money for a second (ie inflation adjusted off a base of 100 at a point in time) and let's work with nominal values. The most basic approach is quite linear as a basis for estimation. Since you're a walking, talking scientific calculator I'm sure you'll be able to work this out for yourself. Go get the following two stats [1] inflation for the past ten years (since by 1997 house prices had caught up some off the really low base of the early nineties) and [2] house price growth for the past ten years. Apply both stats to a base price of say 400,000 for a house bought around 1998 and extrapolate it over a decade. The nominal house price growth will probably show you a price of around 1.6 bars in 2007 if you're using reasonably accurate stats (linear price growth of around 400% for the period). On the other hand, the inflation adjusted growth will show you a 2007 price of around 940,000 for the same house... The deviation is the difference between the inflation correllated price and the nominal price as it stands today. The deviation, historically, will almost never exceed 2X the inflation curve before it reverts to the mean. Why do I say this? This IS about people's incomes. When did you ever hear that people get larger annual salary increases than the prevailing inflation rate? So, house prices went through the roof the past decade while salaries went backwards. We did not come off a low base in the late nineties as people were already paying around 3X annual earnings for property. It's property prices that ballooneed out of all proportion on the back of easy credit and the big lie of paper valuation, not people's incomes. And now, we're just seeing a natural reversion to the mean represented by inflation adjusted growth as opposed to free for all speculation.
As to the bands I use? roughly 30% either way of the inflation adjusted mean. Today that would make a nominal 1.6 bar property a raging buy at 650k and a 'don't touch' above 1.22 bar.
I don't care if sellers take their properties off the market and I care even less for their reasons. In the battle between greed and fear, patience always wins
Now, I'm sure this will stimulate some vitriol and hopefully a good debate...
Sorry Pete, my typo. Real money is a value that is adjusted for devaluation at a particular point in time. It has nothing to do with inflation, or rather, it is the inverse evil twin of inflation
You know I like cut and dried, Joe. And I see that you struggle to find a true method, so let me suggest some ways to determine the price for you, and then look at your comments again.
Off hand I can think of three or four. Replacement cost, market value, income-based valuation etc.
Also, real or nominal refers to appreciation, not to value/price. Price is current, today and measured in ZAR. Just like anything else you buy, no matter how the price is calculated, it's the price and thats's that.
Now, these methods to determine the price of property are used all over the world and they are used by people who sell and buy property. So this makes them real - not your inflation-based or theoretic values.
So lets go back to the example that Ive given you.
The R1.4m flat. After rates, levies, vacancies and all operating expenses you take R84k p.a. (as I said, R7k/m net). That area (UCT surrounds) has a cap rate of 4.5% (not good, but that's what it is). That means the flat is worth R1.86m by this method.
The flat is 114 sq.m. do your own calculations for replacement value and remember to include the value of the land (it's sectional title).
The 10% drop measured by FNB house price definitely serves to show the trend, but it doesnt do anything for estimating the quantitative value of a property.
There weren't any flats sold lately (12 months), so it's not possible to use market value at this stage. There is a smaller (74 sq.m.) unit for sale for R1.1m, but extrapolation from this would not help.
Aristotle once remarked (I think it was to Plato) that 'A Swallow doth not a Summer make'. But let's leave it at that.
In the world of fractional reserve banking and fiat currencies I thought I had the concepts of real and nominal pegged until you came along Pete, and showed me the errors of my ways. I stand corrected.
SIT VIS VOBISCUM
And then there are areas and there are areas. I havent had my flat since 1997, so I cant say what it cost back then. But I can tell you that the flats didnt have a 400% (35% annualized) appreciation. Only, and then only maybe, in the 2004 - 2006 final straight.
So, I am not sure where this R400k property of yours is situated, but it must be in the Waterfront or CTICC area.
Funny that you selected 1997 - 2009: you sure it's not just a convenient and exceptional trough to peak that you selected? How does the same graph look from '99 to '09 or '95 to '05?
And now that the Reserve Bank has officially annouced that it will stimulate the economy, despite inflationary pressures, and contrary to the inflation targeting policy that they had from 2000 (only been 8 years! easy how it can be removed again), just watch how the CPI ticks up in the next year or two.
Really think house prices will stay behind? Because 3 - 6% inflation from 1997 projects it should? Mmmmm
Looking at house price indexes for April/May from around the world now. Same good runs are seen on the equity markets (incl JSE).
It's happening...
Not sure what the governments are doing, but it's working - even if just for a while and until the next bubble and subsequent burst.
aaah, scientia est potentia Pete... I humbly shut my trap and let the blog think me a fool.
Thou art not one, thou art many. Without thee there be no fun and no profit in this world
Go on Pete, you can get the last word in.
Easy Joe, like I said, very simple: FACTS. You requested an example, I posed two in detail. CJ showed, FACTUALLY, how it MIGHT (he qualified his statements) still possible to acquire a better buy than building. And so, for the sake of plain decency (never mind the fact that I actually, really would like to evaluate the current price of property) you can at least show me the errors in my approach or otherwise ascribe your opinion to pure sentiment and let me find sources of substance. But do not attempt to feed me bull for figures and expect it to go unchallenged.
Glad to see that double digits have kicked in!!! I own property but am glad for the masses that prices are coming down! We live in a greedy world and I hope that worse is yet to come for all those greedy suckers!!!
But on a serious level... according to ABSA, etc. and their "average" housing price! What areas are we talking about?
Blouberg? Soweto? Houghton? Kempton Park? Milnerton? Cause seriously, all those houses for sale are still way to expensive for my liking!!!
hey Peter. you know no matter how you work the figures, and lets face it they can be used to prove any argument, A house is only worth what someone is prepared to pay for it on any given day. So if someone is prepared to give you R2 bar for a pos in parklands to day, then thats what it is worth. Today. Value for money? well to the person paying it must represent value for money or they wouldnt pay it. Tomorrow may be a whole different story. no buyer out there prepared to buy for any cost. then the pos in parklands is not worth anything. and consequently offers no value for money to anybody out there.
So stop looking a the figures and start looking at why people are buying and why they are not. And when that could possibly change, and then you will have a better idea of what is going to happen. off the top of my head i can think of 3 reasons prices are going to continue having downward pressure:
Affordability. Access to capital. over supply of stock. I think these are major issues.
when these things change houses will go up again. although parklands will by then be a slum and will still be worth bugger all.
Sakkie van der Tshabalala,
Hope you have lots of salt ...
It has nothing to do with area and the index includes big RDP houses in PE as well as tiny bachelor's flats in Rosebank. The banks use the average value of housing transactions (sold) and only those financed by them. They 'filter' the data and disregard whatever they consider as outliers.
Hang on, then they go and 'adjust' the value by deflating it with the consumer price index. They use the average, even though the median inflation rate has overtaken the average price inflation rate (the two trends cross at times). They still debate which makes more sense. For median they also don't use the same data sets in order to compare with the average price (nearly 20% difference).
All in all it gives you a trend how much the sample population pays for property and it does not give us an indication of what a property is worth.
Point taken, bbflames. But I am not using figures to prove any argument. I am gathering info and I am finding out how best to value property so that I don't pay too much for a house when, and if, the missus wants more babies, ok.
And your points are true about property with a face value. Then the price is what people FEEL the whole set-up (building, land, area, view, parks, time-frame, pets) is worth.
However, when I want to use your arguments to buy the house, there needs to be only one person who knows its true value and who wants it and who is able to pay for it, then it is sold - maybe at a very good price.
Yo Peter
It must be very difficult to live in a World where you are right and everyone else is wrong (and stupid)! You have my sympathy.
In any event, please explain why people should buy property at rental yields of 3-4%? That I don't understand!
I would also like to see a plot of property prices versus income growth for the past couple of years - I guess it will show that one or the other trends (incomes or property) is on an unsustainable path and will have to change in the short term
Anon, please qualify 'rental yields'. Because your suggestion to be buying property at a NOI of 3% - 4% is madness, unless in context of the other ways and reasons for buying (e.g. investment, short term profit taking, residence, appreciation, fixed rates etc), then it can work. Let me know
Property prices vs. Income? Are you looking for a link (like in Russia)? And why only for the last couple of years (3, 10 years?). Let me have some more detail to your questions and I'm sure I can explain.
My goodness Joe! Only noticed now that you read the M&G! You are joking, right? Riiigght??
Hey, here's a nice blog to support. This oke is quite diligent about keeping it updated and it's one of the few places where you can get historical CPI CPI Inflation Rate in South Africa
Another nice one Composite Leading Indicators (MEI) but they're just a bit slow about updating stats. Gives you a nice trend line and graphs to work with though.
Now here's the surprise and it's well worth taking note of: US New Claims are surprisingly down yesterday. Waiting for Non-farm payrolls today. We're seeing leading signals that unemployment could be bottoming in the US. Continueing claims are up though and that shows the unemployed remain unemployed and mizes thing up a bit. Kind of says that bad times are here to stay for a while. The property market there (and the rest of the world lagging it) is indirectly impacted by this. Good news is Consumer Confidence and ISM are both up for the first time this year. That could mean we're starting to see a bottoming process setting in. Equities will lead this though it's my personal opinion we're just just seeing a HUGE dead kitty bounce in a much bigger bear market. I reckon we're seeing a frenzied bear market rally tween now and Sep 09 and then watch the dropoff in Oct or Nov and it will take all asset classes with it. But that's just my crystal ball mumbling.
There's your V shape, Joe. No W or 'bathtub', V, mate. Green shoots 'n all.
Pete, yes, I do read M&G. I'm also a big Al Jazeera fan, about the only news service out there that doesn't toe the 'mainstream media' line as dictated by politico's. Oh, and Noseweek also deserves to be mooted as unbiased HTG reporting
Sorry guys, here are the links (I fudged the hrefs)
CPI Inflation Rate in South Africa
Composite Leading Indicators (MEI
you're predicting again Pete. We'll do hindsight around Nov 09 ok? And green shoots do need roots don't they? LIBOR spreads are widening again and that's quite telling. I wonder where buyer's are going to get loans to buy properties when banks are declining 70% of bond applications?
Joe, why do you say that? I am using the same economic indicators that you are. Goodness! I am not predicting a thing, the V happened beginning of March already! Stocks and property up 50% from the September '08 low. So what on earth are you talking about 'predicting'? This is history.
I see your self-help mate on Liberta had some debt probs, aye. But you are right, his CPI figures are good, although he doesn't mention that earlier figures were x-mortgages, but close enough.
Some of his debt-free tips are dangerous though. And his suggestions that no credit gives freedom is good if you really, really aspire to only a caravan and a veggie gardens in your old age. Hey, at least you won't owe anyone anything.
Little bit too self-help
@pete
CPI figures are the "rebased" set from statssa. I assumed they were reworked to include mortage. Not so?
Francois Viljoen,
Yes, but the figures will be higher due to the fact that mortgages were excluded when house price inflation was calculated in the past. The current advice given on this blog is that I should not look at interest rates when evaluating property value, while this is exactly what will happen with the 'rebased' model. Joe gave his expose why he uses CPIX, I thought about it and still feel that the interest rate is a better measure. We wont all feel so negative about property prices if it shows that they did not grow by 400%
Good point Francois, Peter! Well worth thinking about. Hmm, I have to rethink my approach here. I haven't really looked at how the new basket accounts for the rent equivalent approach. Peter? How do you see that the new CPI 'accounts' in real terms for house price inflation without skewing against income growth? In other words, how do we justify that house price inflation does not outpace peoples growth in income?
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