By Roy Cokayne, Business Report
A retreat by house buyers as bond costs have risen has led to house prices dropping for the second consecutive month, according to Standard Bank's median house price index.
House price growth fell to minus 8.6 percent year on year last month, its lowest level since December 1996 when it was at minus 10.5 percent.
After no growth in the three months to February, house price growth went negative in March when it was at minus 5.2 percent. During the recent property boom, it reached a peak growth of 31.9 percent for the 2004 calendar year. Standard Bank's median house price dropped to R530 000 last month from R580 000 last April and R550 000 in March.
The bank stressed that the residential property market was undergoing a cyclical correction. But this was not comparable to the US subprime crisis, although the risk of national house price deflation in South Africa had increased and there were areas possibly already experiencing price deflation, albeit from a high base.
Recent estimates for house price growth should be interpreted with caution, as they were subject to distortions, leading to an overstating of the extent of underlying house price growth. The relatively high base value from which the latest and pending year-on-year growth rates were calculated was established last year due to the temporary upward adjustment in the distribution of mortgages entering its home loan book in the months leading up to the introduction of the National Credit Act.
However, the overall downward trend in house price growth still reflected the sharp fall in demand due to the reduction in housing affordability.
Sizwe Nxedlana, a property economist at Standard Bank, said houses were increasingly sold at below the initial asking price and staying on the market longer. There was increasing anecdotal evidence of a rise in distress selling.
Nxedlana said recent trends in South African house price growth, when compared with trends in the US, could at first seem ominous for the outlook for residential property.
Standard Bank's analysis of the sources of the recession in the US housing market and its subsequent transmission mechanism to the rest of the US economy suggested local residential property would experience a relatively mild cyclical downturn rather than a full blown recession.
Nxedlana said the outlook for residential property was tied to the outlook for the exogenous shocks affecting domestic inflation, interest rates and growth, which to some extent would be determined by how and when the subprime-induced credit and confidence crisis in the international markets was resolved.