SA had the biggest housing bubble yet the US is showing us how to crash properly. Someone commented on a forum how their $170,000 home was auctioned for $55,000 (NB they have real auctions in the US, not the fake SA ones with minimum prices and shills bidding).
Detroit still leads the way on how to really do it - $10,000 (R70,000) for this nice looking 3 bedroom house
On the same site an acre plot is going for $2000 (R14,000).
Now THAT'S a crash.
Saw some interesting graphs today - US housing priced in Gold and silver has been crashing since 2002. Houses prices need to half their price or gold/silver needs to double their price (or a combination) and we will then be at the previous bottom.
UK average house prices priced in dollars actually crashed 50% over 18 months from 2008.
The US market in dollars shows a fall and the classic bull trap which has recently reversed down again and is now below the previous low, so this is usually when the real plunge happens.
So we are still a year or two away from the US nominal bottom.
And in real terms SA will bottom traditionally 2 or 3 years after the US real bottom.
I reckon SA hasn't even started seeing the real pain yet. If our bubble was bigger than the US one, then I see no reason why we shouldn't crash just as aggressively.
I think that SA will be like Aus. Aus also has a huge property bubble, yet prices are now back on the rise. Think this is due to a strong commodity-led economy.
Check out this interesting chart on the weight of food prices in the CPI basket. SA comes in at about 15% which is on the extreme low end of the scale - the second lowest in the world between UK (no1) and the USA (no 3).
SA real estate will not have the collapse we saw in the USA because the States had ARM home loans. People were qualifying to buy homes only because of ARM rates. They bought assuming they could resell at profit before the ARM reset. When the market stalled the sellers couldn't offload their property. In many cases people held multiple properties. As the ARM loans reset at regular rates the owners couldn't service the payments. Supply of sellers exceeded buyers. Credit supply froze and the recession scared off buyers. SA does not have the volume of totally DESPERATE sellers that the USA had. SA. Sellers are hurting but not in a death trap. So you end up with a dead market.
Flat prices. Low demand. Thats SA for the next 5 years.
Its a game called hide the sausage, or rather the price of it.
Our government thinks food is of less importance to us than cars, cellphones, teevees etc
All of us are making so much cash in SA that very little needs to go to food expenses.
Our CPI calculations were given to us by the IMF to be in line with International Accepted Best Practice
@Jules
It was a lot more than ARM loans; it was a huge dose of socialism via Freddie, Fannie and Ginnie, a repeal of Glass Steagal, disastrous Fed policy and suicide banking [MK's term]
I agree with you though. The bubble is not in property, its in paper. Until we have massive defaults and a collapse of paper we will not see a crash. Since half our banks balance sheets are mortgage debt, the government and SARB will come to their rescue if there are shocks. Our stimulus package also winds up in about 2013 if i'm not mistaken?
Officially inflation is 3.5%. I have just been to a local supermarket - a specialised loaf of bread I used to buy has suddenly gone up 45%. I mentioned it to the manager - he blamed it on increased prices from their floor wholesalers (they bake it themselves). He says there are big price increases coming down the line.
Yet inflation is 3.5% ... yeah right...
Remember last year when the Saturday Argus had a food inflation graph that they worked out every week. One week I pointed out that it was sky rocketing. The graph disappeared the next week and hasn't appeared since ... someone prefers us to be blinkered to what is happening.
Australia housing is in government aided denial just like SA. The real price charts have to fall - cycles don't suddenly stop happening - the down cycle has to happen ... you might be able to delay it but you certainly can't stop it eventually happening.
Talking to an economist today about the IR cycle and his outlook for property. His view is there's not going to be a crash, just a slow death by inflation. Ran CJ's 40 percent fall by him, he said 40 sounded high given the lack of ARM and liar loans in SA, but said 25 to 30 percent (in places was possible).
BUT, he said, there would be no crash (in-built safety nets / vested interests propping the whole thing up), so instead look to 5 percent inflation for 5 years. There's your 25% drop.
Interest rates will start to increase again in the third quarter of this year by 2012 there is going to be panic selling because inflationary pressure on income to debt ratio will increase.People are holding on to their houses hoping there would be a sufficient increase for them to off load it,so as not to owe the bank after they sold their home or holiday homes.What the auction houses and estate agents are not letting out of the bag is that there is a crisis but it is best to keep the fools under an illusion.I own a flat in Cape town bought it for R300,000.00 in 2005.An under pressure seller just sold one in our block for R 160.000.I was told buy an estate agent that was only the tip of the iceberg in terms of property sales.Sellers are having to give in to the market sooner or later.Banks are tightening there lending criteria,so very difficult for buyers to get mortgages.
Too add to the problem, a lot of people that bought property over the last couple of years did so because they could afford the repayments, and they begged borrowed or stole the deposit. If inflation boosts interest rates we will see some crashes, but in specified areas. I predict that the newer areas will hurt, those plot and plan deals doing their rounds will crash as the FTBs cannot make it due to the owners' low equity levels. Older, larger, established properties will depreciate but as someone mentioned, inflation will slowly eat that away.
13 comments:
R1.47 mill to R970k. R500k, 34% drop. Mount Oaks, Main Road, Kenilworth.
Was that in one go or was it a number of cuts over time?
SA had the biggest housing bubble yet the US is showing us how to crash properly. Someone commented on a forum how their $170,000 home was auctioned for $55,000 (NB they have real auctions in the US, not the fake SA ones with minimum prices and shills bidding).
Detroit still leads the way on how to really do it - $10,000 (R70,000) for this nice looking 3 bedroom house
http://www.rightmove.co.uk/overseas-property/property-32157494.html
On the same site an acre plot is going for $2000 (R14,000).
Now THAT'S a crash.
Saw some interesting graphs today - US housing priced in Gold and silver has been crashing since 2002. Houses prices need to half their price or gold/silver needs to double their price (or a combination) and we will then be at the previous bottom.
UK average house prices priced in dollars actually crashed 50% over 18 months from 2008.
The US market in dollars shows a fall and the classic bull trap which has recently reversed down again and is now below the previous low, so this is usually when the real plunge happens.
So we are still a year or two away from the US nominal bottom.
And in real terms SA will bottom traditionally 2 or 3 years after the US real bottom.
I reckon SA hasn't even started seeing the real pain yet. If our bubble was bigger than the US one, then I see no reason why we shouldn't crash just as aggressively.
I think the nasty stuff is still coming.
CJ
I think that SA will be like Aus. Aus also has a huge property bubble, yet prices are now back on the rise. Think this is due to a strong commodity-led economy.
your thoughts?
Hi Guys
Check out this interesting chart on the weight of food prices in the CPI basket.
SA comes in at about 15% which is on the extreme low end of the scale - the second lowest in the world between UK (no1) and the USA (no 3).
What could it mean?
http://www.businessinsider.com/food-as-a-percentage-of-cpi-in-various-countries-2011-1
SA real estate will not have the collapse we saw in the USA because the States had ARM home loans. People were qualifying to buy homes only because of ARM rates. They bought assuming they could resell at profit before the ARM reset. When the market stalled the sellers couldn't offload their property. In many cases people held multiple properties. As the ARM loans reset at regular rates the owners couldn't service the payments. Supply of sellers exceeded buyers. Credit supply froze and the recession scared off buyers.
SA does not have the volume of totally DESPERATE sellers that the USA had. SA. Sellers are hurting but not in a death trap. So you end up with a dead market.
Flat prices. Low demand. Thats SA for the next 5 years.
@Benny
You have 4 options:
Its a game called hide the sausage, or rather the price of it.
Our government thinks food is of less importance to us than cars, cellphones, teevees etc
All of us are making so much cash in SA that very little needs to go to food expenses.
Our CPI calculations were given to us by the IMF to be in line with International Accepted Best Practice
@Jules
It was a lot more than ARM loans; it was a huge dose of socialism via Freddie, Fannie and Ginnie, a repeal of Glass Steagal, disastrous Fed policy and suicide banking [MK's term]
I agree with you though. The bubble is not in property, its in paper. Until we have massive defaults and a collapse of paper we will not see a crash. Since half our banks balance sheets are mortgage debt, the government and SARB will come to their rescue if there are shocks. Our stimulus package also winds up in about 2013 if i'm not mistaken?
Officially inflation is 3.5%. I have just been to a local supermarket - a specialised loaf of bread I used to buy has suddenly gone up 45%. I mentioned it to the manager - he blamed it on increased prices from their floor wholesalers (they bake it themselves). He says there are big price increases coming down the line.
Yet inflation is 3.5% ... yeah right...
Remember last year when the Saturday Argus had a food inflation graph that they worked out every week. One week I pointed out that it was sky rocketing. The graph disappeared the next week and hasn't appeared since ... someone prefers us to be blinkered to what is happening.
@JDog
Australia housing is in government aided denial just like SA. The real price charts have to fall - cycles don't suddenly stop happening - the down cycle has to happen ... you might be able to delay it but you certainly can't stop it eventually happening.
Talking to an economist today about the IR cycle and his outlook for property. His view is there's not going to be a crash, just a slow death by inflation. Ran CJ's 40 percent fall by him, he said 40 sounded high given the lack of ARM and liar loans in SA, but said 25 to 30 percent (in places was possible).
BUT, he said, there would be no crash (in-built safety nets / vested interests propping the whole thing up), so instead look to 5 percent inflation for 5 years. There's your 25% drop.
Interest rates will start to increase again in the third quarter of this year by 2012 there is going to be panic selling because inflationary pressure on income to debt ratio will increase.People are holding on to their houses hoping there would be a sufficient increase for them to off load it,so as not to owe the bank after they sold their home or holiday homes.What the auction houses and estate agents are not letting out of the bag is that there is a crisis but it is best to keep the fools under an illusion.I own a flat in Cape town bought it for R300,000.00 in 2005.An under pressure seller just sold one in our block for R 160.000.I was told buy an estate agent that was only the tip of the iceberg in terms of property sales.Sellers are having to give in to the market sooner or later.Banks are tightening there lending criteria,so very difficult for buyers to get mortgages.
Too add to the problem, a lot of people that bought property over the last couple of years did so because they could afford the repayments, and they begged borrowed or stole the deposit. If inflation boosts interest rates we will see some crashes, but in specified areas. I predict that the newer areas will hurt, those plot and plan deals doing their rounds will crash as the FTBs cannot make it due to the owners' low equity levels. Older, larger, established properties will depreciate but as someone mentioned, inflation will slowly eat that away.
http://www.privateproperty.co.za/ss-mandela-rhodes-place-cape-town-centre-j56076.htm
Dropped R505000 from R2500000 to R1950000
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