Although interest rates are the lowest in more than 30 years and have been reduced by 6.5 percentage points since 2008, this has not had the desired effect on the housing market and credit extension.
Property experts reckon consumers are not benefiting from the favourable conditions because during the economic heydays they took on too much debt and are now sitting with the consequences.
The house price indices announced over the past week reflect a market in which house prices are falling in certain segments, and are experiencing exceptionally low growth rates in others. The interest-rate increases expected later this year foreshadow sombre times for the housing market.
If the housing market has not been able to produce respectable growth in the low-interest-rate environment, it can only be headed into a period of falling prices, said First National Bank (FNB) property analyst John Loos.
He said there was simply too much debt; further debt-driven spending could not be created. The FNB house-price index showed that the average house price in March was a meagre 0.7% up on the same month a year ago. FNB’s index is based on transactions for which loans have been approved.
From Absa’s latest house price index it appears that in March the prices of average-size houses (141m² to 220m²) in the middle segment of the market were 0.7% down on the same month last year. This index is based on the prices of houses in deals financed by Absa.
Jacques du Toit, senior property analyst at Absa’s home loan division, said consumers' limited financial manoeuvrability was reflected, in particular, in figures from the National Credit Regulator (NCR), where almost half of all credit-active consumers experienced problems with repayments in the fourth quarter of last year.
In that quarter 46.5% of the total of 18.5m credit-active consumers were more than three months in arrears in their debt repayments.
In the middle of 2007, when the National Credit Act came into operation, the figure was 36.4% of the total of 16.8m credit-active consumers.
This means that there are now 8.6m consumers with problem indebtedness compared with 6.1m in 2007.
He said consumers' indebtedness as a percentage of their disposable income remained stubbornly high. In the fourth quarter of last year it was 77.6% and, although this is less than the all-time high of 82% in 2008, it is significantly higher than the average of 52% to 54% between 2000 and 2003. These high levels of indebtedness restrict consumers’ access to finance.
It's therefore no surprise that the growth in mortgage advances to the household sector in February this year was a low 4.1% year on year.
Loos expected that the situation could cause a dilemma for the Reserve Bank, which should have the freedom to combat inflation by raising interest rates.
He expects that the next rising-interest-rate cycle will start later this year and that in this cycle rates could be hiked three percentage points, pushing them up from the present 9% to 12%.
This would be bad news for the home owner because his mortgage repayments would rise significantly as well.
Du Toit said if interest rates go above 12%, a homeowner with a 20-year mortgage of R700 000 will see his monthly repayment increase as much as R1 410.