The 200-odd properties in Cape Town I've been monitoring since mid-2007 are showing an almost complete halt in sales and price reductions. Nothing is selling, and nobody is dropping prices. A lot have also taken their places off the market.
So clearly we still have the great majority of non-forced sellers in total denial about what their places are worth (I have a list of shoeboxes that are still on the market for their mid-2007 prices - some of these morons have even raised their prices, despite their crappy little McMansions being unsold for two years).
The reductions that do happen from time to time are still just tokens - 4% here, 5% there - as people chase the market down.
The total gridlock in the market suggests one of two things:
1) The lack of buyers really is only about lack of bank credit, as claimed by the bulls, and once banks loosen up a bit, prices will continue to rise.
2) Bourgeois South Africans, never the quickest on the uptake, are still in complete denial and the real US-style cascade in prices hasn't even started yet.
I know which version I believe. The entire debate in SA is being led by industry cheerleaders and the wealthy, who seem to be either ignorant about first-time buyers or openly hostile to them (observe the chilling references to "losers" in every forum in which the wealthy display their prejudice against the less wealthy). Sure, the rich will continue to by from the more rich and sell to the less rich, but the first link in that chain is the first time buyer. Until they can get a sniff of something they want - i.e. until prices fall another 30 percent - that chain is not going to form.
Your analysis does not consider properties traded on auction floors - pretty much the only area where sales are occuring right now. What it tells me is that buyers have lost hope in what regular agents offer them. Why bother with agents brokering overpriced property when you can buy for cheaper on auction?
Totally agree with you Propxchanga, but I think what your own analysis leaves out is the fact that in order to buy on auction you need cash. First time buyers do not have cash. No doubt wealthy cash-flush investors are scoring at auctions, but this is not sustainable. At some point the wealthy will all have bought and sold from each other, but the FTBs will still be out in the cold, and nothing will really have changed.
The more I watch the SA, US and UK markets, the more I am convinced that FTBs are the one and only important barometer of how close to the bottom we are.
Just posted this at realestateweb - this baby has a way to go I reckon - a few reasons why -
1/ Bond debt as ratio to disposable earnings is twice as bad as it was 7 years ago, yet unemployment is growing - where is the money going to come to pay off these debts. Oh, and interest rates may have bottomed.
2/ SA needs to fall 63% real from peak- the chart was on here a few weeks back
3/ SA real price will bottom 3 years after the US real price bottoms. The US has not bottomed yet. Big bond problems coming down the line .
4/ Rents to houseprice ratios and salaries to houseprice ratios will return to their norms - they are no where near that presently.
5/ The sellers are still holding back from discounting their houses because they believe the good times are around the corner. That is not the bottom of a cycle. That is still "denial" which is half way down.
6/ The bulls are still too chirpy. More of their blood is needed for a bottom to be reached.
7/ Brennan hopes inflation will save him. But experts are thinking that It could be only food inflation, with higher bond rates, but accompanied with asset deflation, and high unemployment so falling rents. That would be a nice finale - a BTL bloodbath of despair to herald in the approaching bottom of the crash.
I think what is holding our crash back is everyone's desperate need to believe 2010 is gonna save all. I think once that has come and gone, the SA market will hit freefall as not even our bank and real estate cheerleaders will be able to prop up the oversupply.
If you think how South Africans are are able to fool themselves, crime is not really an issue, Peter DeViliers is a good coach, corruption in government will be stamped out, another party other than ANC will win if ANC doesn't fulfill their promises, and such, then it will take a long time for reality to set in.
I agree with all the comments above, and thanks for the update and 7 points, CJ - always insightful.
Coming back to BC's comments on cash funds and buying on auction: you'll notice that the leading auction companies are trying their best to lower the entry barriers. 5% deposit now on Resi. More Comm innovations ahead too.
I also understand that the number of FTB's attending auctions are increasing fast. In fact, their ratio compared to others is pretty much right up there.
No need to rush in yet though - still a long way to the bottom.
What I find really amusing is that most property bulls assume that anyone expecting a price fall is "poor" and cannot afford to buy. In other words, they assume people are WANTING a price drop because they are priced out of the market...
I am not priced out of the market but I do expect prices to fall. If I really believed that prices will rise then I would buy right now. I would be stupid to wait if prices are going to rise. I'd be dumb to wait if I can afford to buy now. But I 100% honestly think prices will fall. My brain tells me to wait!!!!
I am working in Toronto and earning dollars. I will only be returning full-time to Cape Town in 4 years time. With a dollar income, I can easily buy property in CT right now. But I wont.
Waiting is not about affordability - it is about having a brain that works. Prices are way too high for the average person and FTBs are priced out. While I do not expect to see a USA price implosion, I do believe that post 2010 soccer WC, you will see prices soften in 2011, followed by stagflation for another 2 or 3 years. Factoring in time value of money, you are best served to wait until about 2013 before buying in Cape Town.
Want to chart this and post it CTBubble ? I love this real price chart - I posted this at realestateweb yesterday - if you can do the chart then I can link to it for interested parties to see--
Can someone redo for us the above graph showing the average real price based on Absa's stats, giving the year 2000 (the start of the boom) a figure of 100. House prices should go up with inflation so in a normal environment the real price should be 100 every year.
This graph is important as it shows that house prices have gone up twice as fast as inflation. It also shows that the bubble is far from over, because that will only have happened when we return back to 100.
Here are the numbers - can someone do the graph and give us a link (capetownbubble ?)
Year ---- real annual price percentage change --- price if year 2000 is 100 Jan 00 --- ---- ---100 Jan 01 --- 10% ---110 Jan 02 --- 8% --- 119 Jan 03 --- 4% ---- 124 Jan 04 --- 24% --- 153 Jan 05 --- 30% --- 199 Jan 06 --- 12 % --- 223 Jan 07 --- 9% --- 243 Jan 08 --- 0% --- 243 Jan 09 --- -10% --- 219
Amount real price needs to fall to bring it back to 100 is 54%
Perhaps something like this -
Jan 10 --- -10 % --- 197 Jan 11 --- -15% --- 168 Jan 12 --- -15% --- 142 Jan 13 --- -15% --- 121 Jan 14 --- -10% --- 109 Jan 15 --- -10% --- 98 Jan 16 --- -10% --- 88 Jan 17 --- 5% --- 92 Jan 18 --- 8% --- 100
I'm thinking of selling my 2 bedroom because my 2 kids need more space. I have been watching the market for some months and have seen prices gone down. I don't really want to wait till after the world cup but I'm afraid of buying before the bubble really bursts. What is the best option? Sell my place and rent till the market bottoms? Sell my place and buy for R1000000 or less? Sell my place and buy were I really want to for about R1,5M.
Fireman, ideally you'd sell now, rent until the market bottoms some time after 2010 or 2011 (or maybe 2012 or 2013!) and then buy. The only problem is that I can almost guarantee you that will not sell your place at anything near what you're hoping to get. The market has locked up tight, and unless you present a really startling listing - 25% off what your neighbours are asking - nobody is going to bite.
Fireman, if you're not trying to sell in a hurry then you will be able to at least not settle for a lower price than you have to.
Of course at the same time prices continue to stagnate (in nominal terms) or drift downwards so the longer you wait the lower the price you are likely get.
You have to hope that a buyer will decide that your property is the one he wants and is willing to buy.
Works both ways - if the cycle means he gets less for the house, then it will mean he pays less for the house. If he waits longer, he might pay even less for a house, but also get less for his. And if indeed the bottom of the cycle was reached, and prices shoot up in the future, then he will pay a lot, but also get a lot. Same difference.
Looks like he wants to be a homeowner, not a speculator. So unless anyone will lend him his crystal ball, I say he must buy subject to the sale of his house - many sellers willing to accept that these days. And he's going to upgrade/swop property. He's not a first time buyer unlike me who should keep on renting for a bit (and perhaps then some) - different considerations
I not really sure what I'm gonna do yet but I putting my house on the market any way. Properties are really standing on the market these days but hopefully by the time it sells I'll have a better idea. Or maybe just rent untill I find something I like.
Selling now is tricky and could take a long time. In this market, everything comes down to price and value for money.
If you want to sell fast then you must be prepared to discount at least 10% off your price from a start and be willing to negotiate further. Its purely a buyers market and agents know this leading to sellers getting a beating when it comes to negotiations.
If you do manage to sell quickly then do the exact same offering at least 105 less than asking price and carry on until you get what you are looking for at the price you want.
Dont worry about prices apparently still falling because you are buying to live in for a long time so it makes no difference if you pay full current market price or a little more as prices will start to increase when the cycle turns which can be in the next 3 to 5 years. Remember its time in the market that ultimately determines your success in property.
15 comments:
The 200-odd properties in Cape Town I've been monitoring since mid-2007 are showing an almost complete halt in sales and price reductions. Nothing is selling, and nobody is dropping prices. A lot have also taken their places off the market.
So clearly we still have the great majority of non-forced sellers in total denial about what their places are worth (I have a list of shoeboxes that are still on the market for their mid-2007 prices - some of these morons have even raised their prices, despite their crappy little McMansions being unsold for two years).
The reductions that do happen from time to time are still just tokens - 4% here, 5% there - as people chase the market down.
The total gridlock in the market suggests one of two things:
1) The lack of buyers really is only about lack of bank credit, as claimed by the bulls, and once banks loosen up a bit, prices will continue to rise.
2) Bourgeois South Africans, never the quickest on the uptake, are still in complete denial and the real US-style cascade in prices hasn't even started yet.
I know which version I believe. The entire debate in SA is being led by industry cheerleaders and the wealthy, who seem to be either ignorant about first-time buyers or openly hostile to them (observe the chilling references to "losers" in every forum in which the wealthy display their prejudice against the less wealthy). Sure, the rich will continue to by from the more rich and sell to the less rich, but the first link in that chain is the first time buyer. Until they can get a sniff of something they want - i.e. until prices fall another 30 percent - that chain is not going to form.
Your analysis does not consider properties traded on auction floors - pretty much the only area where sales are occuring right now. What it tells me is that buyers have lost hope in what regular agents offer them. Why bother with agents brokering overpriced property when you can buy for cheaper on auction?
Totally agree with you Propxchanga, but I think what your own analysis leaves out is the fact that in order to buy on auction you need cash. First time buyers do not have cash. No doubt wealthy cash-flush investors are scoring at auctions, but this is not sustainable. At some point the wealthy will all have bought and sold from each other, but the FTBs will still be out in the cold, and nothing will really have changed.
The more I watch the SA, US and UK markets, the more I am convinced that FTBs are the one and only important barometer of how close to the bottom we are.
Just posted this at realestateweb - this baby has a way to go I reckon - a few reasons why -
1/ Bond debt as ratio to disposable earnings is twice as bad as it was 7 years ago, yet unemployment is growing - where is the money going to come to pay off these debts. Oh, and interest rates may have bottomed.
2/ SA needs to fall 63% real from peak- the chart was on here a few weeks back
3/ SA real price will bottom 3 years after the US real price bottoms. The US has not bottomed yet. Big bond problems coming down the line .
4/ Rents to houseprice ratios and salaries to houseprice ratios will return to their norms - they are no where near that presently.
5/ The sellers are still holding back from discounting their houses because they believe the good times are around the corner. That is not the bottom of a cycle. That is still "denial" which is half way down.
6/ The bulls are still too chirpy. More of their blood is needed for a bottom to be reached.
7/ Brennan hopes inflation will save him. But experts are thinking that It could be only food inflation, with higher bond rates, but accompanied with asset deflation, and high unemployment so falling rents. That would be a nice finale - a BTL bloodbath of despair to herald in the approaching bottom of the crash.
I think what is holding our crash back is everyone's desperate need to believe 2010 is gonna save all. I think once that has come and gone, the SA market will hit freefall as not even our bank and real estate cheerleaders will be able to prop up the oversupply.
If you think how South Africans are are able to fool themselves, crime is not really an issue, Peter DeViliers is a good coach, corruption in government will be stamped out, another party other than ANC will win if ANC doesn't fulfill their promises, and such, then it will take a long time for reality to set in.
I agree with all the comments above, and thanks for the update and 7 points, CJ - always insightful.
Coming back to BC's comments on cash funds and buying on auction: you'll notice that the leading auction companies are trying their best to lower the entry barriers. 5% deposit now on Resi. More Comm innovations ahead too.
I also understand that the number of FTB's attending auctions are increasing fast. In fact, their ratio compared to others is pretty much right up there.
No need to rush in yet though - still a long way to the bottom.
What I find really amusing is that most property bulls assume that anyone expecting a price fall is "poor" and cannot afford to buy. In other words, they assume people are WANTING a price drop because they are priced out of the market...
I am not priced out of the market but I do expect prices to fall. If I really believed that prices will rise then I would buy right now. I would be stupid to wait if prices are going to rise. I'd be dumb to wait if I can afford to buy now. But I 100% honestly think prices will fall. My brain tells me to wait!!!!
I am working in Toronto and earning dollars. I will only be returning full-time to Cape Town in 4 years time. With a dollar income, I can easily buy property in CT right now. But I wont.
Waiting is not about affordability - it is about having a brain that works. Prices are way too high for the average person and FTBs are priced out. While I do not expect to see a USA price implosion, I do believe that post 2010 soccer WC, you will see prices soften in 2011, followed by stagflation for another 2 or 3 years. Factoring in time value of money, you are best served to wait until about 2013 before buying in Cape Town.
Want to chart this and post it CTBubble ? I love this real price chart - I posted this at realestateweb yesterday - if you can do the chart then I can link to it for interested parties to see--
Can someone redo for us the above graph showing the average real price based on Absa's stats, giving the year 2000 (the start of the boom) a figure of 100. House prices should go up with inflation so in a normal environment the real price should be 100 every year.
This graph is important as it shows that house prices have gone up twice as fast as inflation. It also shows that the bubble is far from over, because that will only have happened when we return back to 100.
Here are the numbers - can someone do the graph and give us a link (capetownbubble ?)
Year ---- real annual price percentage change --- price if year 2000 is 100
Jan 00 --- ---- ---100
Jan 01 --- 10% ---110
Jan 02 --- 8% --- 119
Jan 03 --- 4% ---- 124
Jan 04 --- 24% --- 153
Jan 05 --- 30% --- 199
Jan 06 --- 12 % --- 223
Jan 07 --- 9% --- 243
Jan 08 --- 0% --- 243
Jan 09 --- -10% --- 219
Amount real price needs to fall to bring it back to 100 is 54%
Perhaps something like this -
Jan 10 --- -10 % --- 197
Jan 11 --- -15% --- 168
Jan 12 --- -15% --- 142
Jan 13 --- -15% --- 121
Jan 14 --- -10% --- 109
Jan 15 --- -10% --- 98
Jan 16 --- -10% --- 88
Jan 17 --- 5% --- 92
Jan 18 --- 8% --- 100
Ok.....
Lets hear what you guys think?
I'm thinking of selling my 2 bedroom because my 2 kids need more space. I have been watching the market for some months and have seen prices gone down. I don't really want to wait till after the world cup but I'm afraid of buying before the bubble really bursts. What is the best option?
Sell my place and rent till the market bottoms? Sell my place and buy for R1000000 or less? Sell my place and buy were I really want to for about R1,5M.
Cheers
Fireman
Fireman, ideally you'd sell now, rent until the market bottoms some time after 2010 or 2011 (or maybe 2012 or 2013!) and then buy. The only problem is that I can almost guarantee you that will not sell your place at anything near what you're hoping to get. The market has locked up tight, and unless you present a really startling listing - 25% off what your neighbours are asking - nobody is going to bite.
Fireman, if you're not trying to sell in a hurry then you will be able to at least not settle for a lower price than you have to.
Of course at the same time prices continue to stagnate (in nominal terms) or drift downwards so the longer you wait the lower the price you are likely get.
You have to hope that a buyer will decide that your property is the one he wants and is willing to buy.
LS
Works both ways - if the cycle means he gets less for the house, then it will mean he pays less for the house. If he waits longer, he might pay even less for a house, but also get less for his. And if indeed the bottom of the cycle was reached, and prices shoot up in the future, then he will pay a lot, but also get a lot. Same difference.
Looks like he wants to be a homeowner, not a speculator. So unless anyone will lend him his crystal ball, I say he must buy subject to the sale of his house - many sellers willing to accept that these days. And he's going to upgrade/swop property. He's not a first time buyer unlike me who should keep on renting for a bit (and perhaps then some) - different considerations
Peter - good advice given the context.
Thanx guys
I not really sure what I'm gonna do yet but I putting my house on the market any way. Properties are really standing on the market these days but hopefully by the time it sells I'll have a better idea. Or maybe just rent untill I find something I like.
Regards
Fireman
@fireman
Selling now is tricky and could take a long time. In this market, everything comes down to price and value for money.
If you want to sell fast then you must be prepared to discount at least 10% off your price from a start and be willing to negotiate further. Its purely a buyers market and agents know this leading to sellers getting a beating when it comes to negotiations.
If you do manage to sell quickly then do the exact same offering at least 105 less than asking price and carry on until you get what you are looking for at the price you want.
Dont worry about prices apparently still falling because you are buying to live in for a long time so it makes no difference if you pay full current market price or a little more as prices will start to increase when the cycle turns which can be in the next 3 to 5 years. Remember its time in the market that ultimately determines your success in property.
Good luck
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