I haven't been in these parts recently so I thought I would check in to see in the New year.
Hows the property market you say ... well, it is totally f**cked. Its one huge mess.
The USA has done what it should - had a huge bubble, had a huge crash, prices are now down 50% or more, prices are where they were at the beginning, so now would not be a bad time to buy, especially with the low interest rates that the government are too scared to increase. Indications are that prices could fall even lower to below historical lows, so don't go into it thinking they will increase in value any time soon.
The UK and SA are another story. They are stuck at that Bull trap on the crash chart. The UK government are terrified to let house prices fall further - they know the next stage is the "fear" stage and it will decimate the UK economy, so they are, as usual, artificially interfering with the market to try and halt the inevitable.
They are keeping interest rates ridiculously low so once again the people who joined the housing Ponzi scheme are protected and the cautious sensible savers who wanted no part of the bubble are being screwed.
The whole existence of the EEC, the UK and the US are being threatened because of the madness of the bubble decade. A columnist wrote in a major UK paper this week, imagining a scenario in 30 years time where the UK no longer existed and had become part of China. That people are even thinking like this shows how messed up everything is.
Back in SA, I returned to my old suburb of Higgovale last week - a once cosy little area that has now been engulfed in property greed and ugly monstrosities have taken over. Building sites are everywhere as existing homes are demolished to be replaced by charmless boxes.
Crime has become a huge problem. Witness the man in his pyjamas in the street at midnight ranting that it was the third time that month "they" had tried to break into his house. 37 break ins in the area in recent months. Very sad. It used to be a quiet safe neighbourhood that most people didn't even know about.
The local paper in Hout Bay recently said that 170 homes valued at 5 million plus were on the market - only 8 had been sold this year. The housing market is stagnant. An agent told me that anyone who bought after 2007 is underwater and hurting.
Compared to salaries, homes are still double where they should be. Interest rates are at 30 year lows but banks know that property is overvalued and that you are going to lose equity over the coming years, so they want you to have a big downpayment to cover their arses when this happens.
It is very hard to get excited about buying a house knowing that it is going to drop in value.
So one rents. Only, there is madness happening here as well. What I am seeing is people that are relocating are renting out their homes instead of selling them ... because they can't, because they refuse to drop the price. So they rent in the new area, and are prepared to pay a generous rent, because a similar home owner has relocated to their old area and is renting their home, also for a fat amount.
On top of this, companies are bringing people to Cape Town and are prepared to pay large amounts (R50,000 a month) to house them. An agent told me they can get these rents. So the estate agents are once again getting greedy and are looking at renters to make their money , and are aggressively pushing the rents up.
And once again, the ordinary working family man, the potential future first time buyer, is getting screwed. They just can't afford these rents.
I look at the parents at my kids school - they own houses because either they bought decades ago when houses were affordable, have rich parents who gave them a few million to get them going, are foreigners who brought their overseas property bubble money into the country and have used that, or, they are accessing the tiny interest rates overseas to buy locally ( get daddy in Europe to refinance his house at a few percent interest, bring that cash into SA to buy a property, and pay daddy back over time).
Those renters at the school also own properties elsewhere or sold their bubble properties at huge profits and are feeling flush.
Those that are the traditional first time buyers with no extra family financial support network are, however, feeling the strain. One family moved out of this area this week to relocate to a small dorp because money just became too tight. That is the sadness in all this.
My sister has a 3 bedroom house in a good part of the UK - her bond at a few percent interest rate is 30% lower than my SA rent. If I bought a similar house here my bond would be double hers. Yet salaries are much lower here.
Estate agents are trying to say that this is the bottom and there are bargains to be had. According to the real price chart we are actually no where near the bottom. The sad thing is, with all the madness and government interference, who knows how long it will be till the bottom is reached.
At some point the "fear" stage will kick in. Probably this year. Maybe interest rates will go up. Maybe money will get even tighter. Already 16% of people renting at R12000 + have stopped paying rent. Squeeze the renters further and this will only get worse. Owners will then have cash flow problems.
At some point the realization will hit home to all those people sitting on their homes, that prices are going down - they are not going to recover anytime soon and the longer they wait, the lower the house value will get.
There will then be a rush for the exits - the first to sell will get the few buyers, those who wait will then have to accept even lower prices. THAT is the fear stage. And it is so imminent. But also it is also taking so so long ... mainly because the governments are rigging the markets.
Historically our real house prices bottom about 3 years after the US bottoms. The US hasn't bottomed yet. Maybe soon. So we have at least another 3 or 4 years of falling real prices. It may even go on longer like in Japan.
Remember, SA had the biggest property bubble of them all. You can't increase houses by 400% and salaries by only 100%. Balance has to return.
All these old dears will tell you "well, we also struggled to buy all those years ago, you just have to get onto the housing market". My reply is always - "Well, if the house you had bought back then had been DOUBLE the price that you bought in for, could you have afforded it ?". The answer is invariably NO. Well that is what we have NOW. Houses are double what they should be. Of course the ordinary person can't buy. And even if he did have the cash, he is nervous to buy something that is going to drop in value.
So where does this leave us. Well, it is a big fat mess.
Few are buying. Relocating home owners are forcing rents up. The Western countries are collapsing and are so full of debt they don't know what to do.
And of course, in Cape Town, it is even worse because we have a national government that is clueless, but in Cape Town and the Western Cape we have the extremely capable DA effectively running the show, lead by the amazing Helen Zille - so, as the rest of the country crumbles, everyone wants to move here.
I'm ranting, I know, but I am angry. I would love to buy, but the greed and hysteria of the last decade has prevented this and threatened the future stability of the world as we know it. This whole mess was caused by property greed and my children will be paying the price for many decades to come. Homes stopped being places to live and became places to speculate with and make easy money. And governments allowed this to happen ... and we are all now all in the shit because of this.
The only country that seems to have it's act together is Germany. There most people rent. Rents are controlled. People aren't obsessed about buying property and don't see it as a way to make money. Instead the country makes it's money the old fashioned way - it manufactures stuff.
Welcome to 2012. It may not be a Mayan end of the world, but I fear bad stuff is going to happen. And I don't even know what the solutions are. The housing Ponzi scheme has spread to banks and governments ... if Ponzis are kept alive by piling on more debt then the eventual fallout will be even worse ... if they are left to collapse, then at this level whole countries are going to get wiped out, and maybe even the global financial system as we know it will implode.
As I said, it is one big, fat, ugly, mess. And property greed caused it.
Well said CJ. It's all due to the spending of money that doesn't exist. Sooner or later the crazy consumerism will catch up to people and they will realize that the average Joe has no equity and in fact most middle class and poor sit in negative equity as we speak. Property prices and recession being a by-product of something greater. A machine fueled by people's own greed. New shoes? New car every 3 years? Bought a house on the max loan you could get?
Is your entire salary going towards interest payments?
Houses are selling though so I do disagree with you there, it's just the logistics of the suburbs that have changed. There was a time when you could pick up a house in Clifton for nothing, be it in the 1700 - 1800s. The CBD is saturated, and so are the outlying suburbs. Places like Newlands and Rondebosch cannot be affordable to the middle class anymore. More people (and I'm talking about economically active people not statistics drawn from the townships) mean more housing, which means the need for more physical space.
I'll bet my bag-pipes your sister won't be able to sell her 3 bedroom for an apartment in Knightsbridge. So why do we sit waiting for Tamboerskloof to get cheaper?
I'm not saying that property is priced just right, I am saying that if you want a spectacular US style crash and burn you will be waiting a very long time.
Ireland house prices have collapsed 60% from peak - 65% from peak in Dublin.
US housing has dropped 50% from peak.
In Northern Ireland (part of the UK), house prices have fallen 50% from peak.
Spain, national house prices have fallen 45% from peak, 50% on the coast.
A US economist says Australia prices are going to fall 50% ( in sydney the average house price to average income is 9 instead of the normal 3.5)
Main land UK is resisting because of tiny mortgage rates thanks to political fear and intervention.
South Africa will of course never crash, despite having had the world's biggest property bubble, because, well... everyone knows, we are different ... and anyway, property prices never go down ...
But what I dont understand is every analyst, every article every opinion is that prices have dropped, more distressed properties are coing on the market, prices are dropping etc etc.
Yet I just dont see it in the Southern Suburbs. More houses on the market yes, and lots in the expensive areas - but all at inflated prices. I don't get it.
8 comments:
Part 1
I haven't been in these parts recently so I thought I would check in to see in the New year.
Hows the property market you say ... well, it is totally f**cked. Its one huge mess.
The USA has done what it should - had a huge bubble, had a huge crash, prices are now down 50% or more, prices are where they were at the beginning, so now would not be a bad time to buy, especially with the low interest rates that the government are too scared to increase. Indications are that prices could fall even lower to below historical lows, so don't go into it thinking they will increase in value any time soon.
The UK and SA are another story. They are stuck at that Bull trap on the crash chart. The UK government are terrified to let house prices fall further - they know the next stage is the "fear" stage and it will decimate the UK economy, so they are, as usual, artificially interfering with the market to try and halt the inevitable.
They are keeping interest rates ridiculously low so once again the people who joined the housing Ponzi scheme are protected and the cautious sensible savers who wanted no part of the bubble are being screwed.
The whole existence of the EEC, the UK and the US are being threatened because of the madness of the bubble decade. A columnist wrote in a major UK paper this week, imagining a scenario in 30 years time where the UK no longer existed and had become part of China. That people are even thinking like this shows how messed up everything is.
continued ..
Part 2
Back in SA, I returned to my old suburb of Higgovale last week - a once cosy little area that has now been engulfed in property greed and ugly monstrosities have taken over. Building sites are everywhere as existing homes are demolished to be replaced by charmless boxes.
Crime has become a huge problem. Witness the man in his pyjamas in the street at midnight ranting that it was the third time that month "they" had tried to break into his house. 37 break ins in the area in recent months. Very sad. It used to be a quiet safe neighbourhood that most people didn't even know about.
The local paper in Hout Bay recently said that 170 homes valued at 5 million plus were on the market - only 8 had been sold this year. The housing market is stagnant. An agent told me that anyone who bought after 2007 is underwater and hurting.
Compared to salaries, homes are still double where they should be. Interest rates are at 30 year lows but banks know that property is overvalued and that you are going to lose equity over the coming years, so they want you to have a big downpayment to cover their arses when this happens.
It is very hard to get excited about buying a house knowing that it is going to drop in value.
So one rents. Only, there is madness happening here as well. What I am seeing is people that are relocating are renting out their homes instead of selling them ... because they can't, because they refuse to drop the price. So they rent in the new area, and are prepared to pay a generous rent, because a similar home owner has relocated to their old area and is renting their home, also for a fat amount.
On top of this, companies are bringing people to Cape Town and are prepared to pay large amounts (R50,000 a month) to house them. An agent told me they can get these rents. So the estate agents are once again getting greedy and are looking at renters to make their money , and are aggressively pushing the rents up.
And once again, the ordinary working family man, the potential future first time buyer, is getting screwed. They just can't afford these rents.
I look at the parents at my kids school - they own houses because either they bought decades ago when houses were affordable, have rich parents who gave them a few million to get them going, are foreigners who brought their overseas property bubble money into the country and have used that, or, they are accessing the tiny interest rates overseas to buy locally ( get daddy in Europe to refinance his house at a few percent interest, bring that cash into SA to buy a property, and pay daddy back over time).
Those renters at the school also own properties elsewhere or sold their bubble properties at huge profits and are feeling flush.
Those that are the traditional first time buyers with no extra family financial support network are, however, feeling the strain. One family moved out of this area this week to relocate to a small dorp because money just became too tight. That is the sadness in all this.
continued ...
Part 3
My sister has a 3 bedroom house in a good part of the UK - her bond at a few percent interest rate is 30% lower than my SA rent. If I bought a similar house here my bond would be double hers. Yet salaries are much lower here.
Estate agents are trying to say that this is the bottom and there are bargains to be had. According to the real price chart we are actually no where near the bottom. The sad thing is, with all the madness and government interference, who knows how long it will be till the bottom is reached.
At some point the "fear" stage will kick in. Probably this year. Maybe interest rates will go up. Maybe money will get even tighter. Already 16% of people renting at R12000 + have stopped paying rent. Squeeze the renters further and this will only get worse. Owners will then have cash flow problems.
At some point the realization will hit home to all those people sitting on their homes, that prices are going down - they are not going to recover anytime soon and the longer they wait, the lower the house value will get.
There will then be a rush for the exits - the first to sell will get the few buyers, those who wait will then have to accept even lower prices. THAT is the fear stage. And it is so imminent. But also it is also taking so so long ... mainly because the governments are rigging the markets.
Historically our real house prices bottom about 3 years after the US bottoms. The US hasn't bottomed yet. Maybe soon. So we have at least another 3 or 4 years of falling real prices. It may even go on longer like in Japan.
Remember, SA had the biggest property bubble of them all. You can't increase houses by 400% and salaries by only 100%. Balance has to return.
continued ...
Part 4
All these old dears will tell you "well, we also struggled to buy all those years ago, you just have to get onto the housing market". My reply is always - "Well, if the house you had bought back then had been DOUBLE the price that you bought in for, could you have afforded it ?". The answer is invariably NO. Well that is what we have NOW. Houses are double what they should be. Of course the ordinary person can't buy. And even if he did have the cash, he is nervous to buy something that is going to drop in value.
So where does this leave us. Well, it is a big fat mess.
Few are buying. Relocating home owners are forcing rents up. The Western countries are collapsing and are so full of debt they don't know what to do.
And of course, in Cape Town, it is even worse because we have a national government that is clueless, but in Cape Town and the Western Cape we have the extremely capable DA effectively running the show, lead by the amazing Helen Zille - so, as the rest of the country crumbles, everyone wants to move here.
I'm ranting, I know, but I am angry. I would love to buy, but the greed and hysteria of the last decade has prevented this and threatened the future stability of the world as we know it. This whole mess was caused by property greed and my children will be paying the price for many decades to come. Homes stopped being places to live and became places to speculate with and make easy money. And governments allowed this to happen ... and we are all now all in the shit because of this.
The only country that seems to have it's act together is Germany. There most people rent. Rents are controlled. People aren't obsessed about buying property and don't see it as a way to make money. Instead the country makes it's money the old fashioned way - it manufactures stuff.
Welcome to 2012. It may not be a Mayan end of the world, but I fear bad stuff is going to happen. And I don't even know what the solutions are. The housing Ponzi scheme has spread to banks and governments ... if Ponzis are kept alive by piling on more debt then the eventual fallout will be even worse ... if they are left to collapse, then at this level whole countries are going to get wiped out, and maybe even the global financial system as we know it will implode.
As I said, it is one big, fat, ugly, mess. And property greed caused it.
Well said CJ. It's all due to the spending of money that doesn't exist. Sooner or later the crazy consumerism will catch up to people and they will realize that the average Joe has no equity and in fact most middle class and poor sit in negative equity as we speak. Property prices and recession being a by-product of something greater. A machine fueled by people's own greed. New shoes? New car every 3 years? Bought a house on the max loan you could get?
Is your entire salary going towards interest payments?
Houses are selling though so I do disagree with you there, it's just the logistics of the suburbs that have changed. There was a time when you could pick up a house in Clifton for nothing, be it in the 1700 - 1800s. The CBD is saturated, and so are the outlying suburbs. Places like Newlands and Rondebosch cannot be affordable to the middle class anymore. More people (and I'm talking about economically active people not statistics drawn from the townships) mean more housing, which means the need for more physical space.
I'll bet my bag-pipes your sister won't be able to sell her 3 bedroom for an apartment in Knightsbridge. So why do we sit waiting for Tamboerskloof to get cheaper?
I'm not saying that property is priced just right, I am saying that if you want a spectacular US style crash and burn you will be waiting a very long time.
Thanks CJ for the great read! I really enjoy coming back to this blog every now and then..
Some latest property crash figures -
Ireland house prices have collapsed 60% from peak - 65% from peak in Dublin.
US housing has dropped 50% from peak.
In Northern Ireland (part of the UK), house prices have fallen 50% from peak.
Spain, national house prices have fallen 45% from peak, 50% on the coast.
A US economist says Australia prices are going to fall 50% ( in sydney the average house price to average income is 9 instead of the normal 3.5)
Main land UK is resisting because of tiny mortgage rates thanks to political fear and intervention.
South Africa will of course never crash, despite having had the world's biggest property bubble, because, well... everyone knows, we are different ... and anyway, property prices never go down ...
CJ
What you say is sad and unfortunately true.
But what I dont understand is every analyst, every article every opinion is that prices have dropped, more distressed properties are coing on the market, prices are dropping etc etc.
Yet I just dont see it in the Southern Suburbs. More houses on the market yes, and lots in the expensive areas - but all at inflated prices. I don't get it.
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