Property Talk

Here is my prediction for the first half of 2015: Stronger than expected house price growth driven by a surge in new mortgage lending. As estate agents we are seeing it all around us. The balance is starting to tip from supply to demand, from a buyers market to a seller's market. The FNB Residential Activity Index, considered a good leading indicator for new mortgage lending growth is pointing to this. The positive external economic "shock" or windfall to our economy is the dramatic fall in the price of oil.

There is uncertainty on how long this low oil price will last, but we expect it to last long enough to keep inflation below the Reserve Bank's 6% target upper limit for 2015. Currently Consumer Price Inflation is measured at 5,3% and the Producer Price Inflation rate is measured at 5,8%, and expected to decline further. The South African Reserve Bank leading indicator statistics reported at the end of January 2015 for the period to November 2014, shows an uptick in the business cycle. Our Reserve Bank Governor, Lesetja Kganyago, in his recently published Monetary Policy Committee statement does point to certain risks facing our economy such as Eskom's load shedding , weak commodity prices, a depreciating Rand exchange rate and the risk of labour action causing work stoppages, all aspects that could work to undermine the benefits of a low oil price.

In terms of the banking sector's approval rates on mortgage bonds the trend according to leading mortgage originator Ooba, is upwards. The last three months of 2014 saw a 68.3% effective approval rate, up since the low point of 57.3% for the 3 months to May 2010. Interestingly the average deposit size for home loan applications processed by Ooba averaged 14% for the last three months of 2014, well below the peak of 23.7% reached in August 2009, and very close to the 13.1% recorded for the three months to June 2008.

It is true of-course that the average rate concession provided nowadays is far less that the prime minus 2% that became the accepted norm for many clients prior to 2007. Ooba reported that the average discount below the prime rate was 1,53% during 2007, and is now, as measured in December, plus 0,47% above prime. Those that have existing mortgage facilities registered on residential property at prime minus 2% are advised to hold onto this relatively cheap finance for now. According to FNB the affordability of mortgage finance when measured as a ratio of the installment value of an average bond over the average employee remuneration index has improved substantially since the 2008 peak of relative "in-affordability". As you pay less on your mortgage bond and earnings on average increase, mortgage finance becomes more affordable and therefore more of it is demanded.

The bigger picture scenario relating to the mortgage bond market in South Africa relates to the total value of Household Sector Mortgages Outstanding and this figure only grew by 2,3% as at the final quarter of 2014. The huge number of boom-time loans are being paid down over time and tend to off-set the growth in recent new lending. This structural reality within our local mortgage market will ensure that house prices do not surge too far ahead in the face of renewed demand.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com