ABSA: House Prices Growth Lagging Behind Inflation

Houses hurting as inflation outpaces property prices

House prices are not growing in line with inflation, according to Absa's latest property price indices released on Monday.

"The average real price [at constant 2008 prices] of houses in the middle-segment of the market was in September this year about 13% below its peak of mid-2007," Absa Home Loans property analyst Jacques du Toit said in a statement.

"This was the result of average nominal house price growth being below the average headline consumer price inflation rate during this period."

In nominal growth, the effects of inflation are not taken into account, while real prices factor in the effect of inflation.

Banks Downscaling Home Loan Departments

Banks brace for home loan sales staff retrenchments

Retrenchments are looming in the home loan departments of two of the four major banks, according to Business Report on Thursday.

Chief executive of First National Bank (FNB) Home Loans Jan Kleynhans confirmed that the bank was restructuring its sales department.

"At the moment we have just taken the first steps by advising [about] 90 people who may be affected. FNB Home Loans has nearly 1 000 employees.

We're Heading Back To Negativeland

According to the ABSA House Price Index:

Price growth in the value of middle-segment homes for which Absa approved mortgage finance (see explanatory notes) continued to slow down up to October this year. The growth in the weighted average nominal value of small, medium and large houses came to only 1% year-on-year (y/y) in October, bringing the average price of a middle segment house to R1 005 800. Revised price growth of 3% y/y was registered in September. On a month-on-month basis the average nominal value of middle-segment homes declined further in October, but the pace of monthly contractions slowed down somewhat over the past three months.

In real terms the average value of homes in the middle segment of the market was down by 0,2% y/y in September this year (up 1,9% y/y in August), based on consumer price inflation tapering off to 3,2% y/y in September from 3,5% y/y in August. The September year-on-year drop in real price levels was the first since November last year, with prices declining in real terms on a month-on-month basis since May this year.

And have a look at this graph:



If you've bought in 2009 you've been 'renting from the bank' (and paying 2x-3x the market rent at that) with no price appreciation since 2008 in real terms. In nominal terms you've been doing the same since 2009. Add bond costs on top of that and you've lost a lot of money in the last 2 years.

And all this is happening with 30-year record low interest rates.

FNB Jump On The Auction Alliance Bandwagon

Following ABSA and it's Rapid Auction Programme(RAP), FNB is now partnering with Auction Alliance in the FNB Quick Sell Programme to get repossessed homes (or if they're following ABSAs lead, forcing sellers into auction before repossession) off their books.

Thanks to reader HG for the link.

ABSA Rapid Auction Programme Report Back - 40% Off Asking Price Accepted

Reader TA went to an Auction Alliance/ABSA Rapid Auction Programme auction and sent in this report:

I must admit that I was quite impressed at the style in which these auctions were being held in that the auctioneers and the bank made it known what was the outstanding bond owing on the property. The way I understood it, these were properties that the distressed owners were 'voluntarily' putting up for auction. Needless to say, not a single property on auction, out of 60, recieved bids even close to their outstanding bond value.

I bid on eight properties and was the succesful highest bidder on three. I left the auction thinking that there was no way in hell that such low bids would be accepted.

I was very pleasantly surprised when I recieved confirmation emails from the auctioneers that all my bids were accepted by the sellers. The one property I bid on was a three bedroom/ two bathroom free standing house in the Table View area. It was and still is for sale through agents for R895 000. My bid of R450 000 was accepted. The other was on a two bedroom 67 square meter flat in the CBD which had a outstanding bond of over R1 million. My bid of R475 000 was also successful. On the third property, a two bedroom flat in the South Peninsula, my succesful bid was R390 000 and the oustanding bond was R650 000 (granted just over a year ago).

Even with the auctioneers commission of 11.4% on top of these prices, they are still bargains of note.

I think that ABSA, along with the other big banks, are seeing ever increasing amount of homeowners defaulting on their repayments and panic is starting to move in. Homeowners are being forced to accept these low bids on their property or else the property will be repossessed leading to a drawn out process which the banks are trying to avoid at all costs.

What gets to me is that the majority of these distressed property owners were granted these bonds less than three years ago by the very same lending institution. Now they are being forced to sell at unheard of prices. The banks actions border on criminal to say the least.

Here's a summary of TA's purchases and the discount he got off asking prices:

	Owed on Bond	Successful Bid	Discount off Asking Price
Three bedroom/ two bathroom free standing house in the Table View area	R895 000	R450 000	49.7%
Two bedroom 67 square meter flat in the CBD	Over R1 million (let's say R1 000 000 even)	R475 000	52.4%
Two bedroom flat in the South Peninsula	R650 000	R390 000	40%

ABSA: Nominal Property Prices Are Dropping

RealestateWeb reports:

Absa, which has been monitoring house prices since the 60s, says the average house is now worth less than it was a month ago.

Its latest figures, released on Friday, indicates that the average house in South Africa cost about R963 500 in November, about 0,1% less than in October.

Real house prices, which take into account the effect inflation has on purchasing power, have dropped by more than 10% year-on-year.

This year houses are expected to have increased in value by about 4% overall, but the forecast for next year is for houses to drop on average by at least 3%.

And there you have it folks. Nominal price drops. If you're a specuvestor and you bought in the past two years and you are not cash flow positive you're about to lose a truckload of money.

So if you bought a house for R1 000 000 today in a year it would be worth R970 000. You would have also paid over R160 000 to basically rent your house from the bank.

Auctions Continue To Increase

Sources reveal to me that for the first time Auction Alliance did more than 300 property auctions last month. Many as part of the Rapid Auction Programme, the main customer of that scheme being ABSA.

ABSA: Forget About 2009

From RealEstateWeb;
Bleak property outlook for 2009 - Absa

Big bank Absa (JSE:ASA) has warned that the property pain is set to continue into next year and said the housing market has cooled off "to levels not seen in many years".

Its October House Price Index, released on Thursday, still shows nominal year-on-year house growth (1,2%), but at its lowest level since January 1993.

With inflation at just over 13%, a little lower than 13,7% year-on-year in September, in real terms house prices in South Africa are falling. The figure for September is -10,1%, said Absa.

Looking at the price trends, said senior property analyst Jacques du Toit, "nominal year-on-year house price growth is at risk of moving into negative territory in the near future".

So if house price growth is still nominally positive, and the trend is for it to move into nominal negative territory and you bought a house, you would in fact be doing nothing more than "renting from the bank" for three to four times the cost of actually renting an equivalent property.

ABSA: Extra Money In Your Bond? Not Anymore.

About 10 people have emailed me this story from RealEstateWeb today: Absa home loan shocker. ABSA are now preventing people with certain savings accounts linked to their bonds from withdrawing any extra equity from those bonds without going through an application and jumping through some hoops.

So what's going on here? Well with close to 80% of the mortgage market ABSA have a lot to lose if property prices go south any further and defaults increase. They're already auctioning off repossessed houses as fast as possible but this action means it might not be fast enough. It would seem they expect to be the new owners of a chunk of SA realty soon and are trying to reduce losses at the inevitable discount rate bank repo auction by keeping the extra cash paid into the bond.

Auction Alliance Breaking Records - Auctions Up 70%

Auction Alliance will be auctioning off +-210 properties this month, the first time they've broken 200 ever. This is a 70% jump from last year September when only 120 or so properties were on the block. A significant chunk of the residential properties are part of ABSA's deal with Auction Alliance through the Rapid Auction Program, a scheme helping to prevent ABSA become, as one source states, 'the biggest landlord in the country'.

ABSA Finally Releases House Price Index: Down 9.6% In Real Terms

In our last Saturday Open Thread a reader wondered why ABSA had delayed releasing their August house price index report? Well he emailed later:

I raised the issue that the Absa house price index was late. As you can see they were just delaying the bad news. 9.6% decrease in real terms of large segment housing. Check out the link

ABSA Bad Debts Hurt Barclays

Buried in this article on the mounting losses in British banking is this little nugget:

Barclays is forecast to reveal a 35% drop in profits to £2.6 billion as bad debts around the world, particularly in South Africa, combine with further losses from its exposure to the credit markets.

Now Barclays are the majority shareholders in ABSA so I assume it's ABSA that is the problem. And yet in the local press ABSA and the other banks are continuing to claim that there's nothing wrong and their bad debts are still at record lows, despite the fact they are canceling already approved bonds! I have a feeling the SA banking industry is being less than forthcoming.

ABSA: Real Price Decline Of 4.5% In 2008

ABSA, who are the largest mortgage lender in SA, are predicting a 4.5% real price decline in house prices in 2008. Jacques Du Toit is quoted as saying that for next two years there will be no real growth:

He says investors in the housing market should not expect to achieve positive real capital appreciation during the next 24 months, but with an increase in demand for rental property, an acceptable income return may be achieved during this period.

The demand for rental property is an assumption that I would not bet on as there are a lot of specuvestor properties out there standing empty that are going to be dumped on the market when they no longer appreciate at 20%+ a year further dampening prices even further and putting negative pressure on rentals.