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MONEY TALKS

MONEY TALKS

Residential property – conditions should improve in 2015

The recovery in the residential property market stalled somewhat in the third quarter of 2014. Mortgage advances grew at a modest, but gradually faster pace until June, before losing some momentum over the three months to September.

A similar pattern was visible in house prices, although most major indices suggest that house prices held up relatively well. The lull in activity was not limited to the housing market, but also visible throughout the economy as confidence and income deteriorated in response to the long strikes, rising inflation and higher interest rates.

However, anecdotal evidence from several recent surveys suggests that there is considerable pent-up demand for housing among the public. Added to this, the appetite for mortgage lending among most major commercial banks has also improved considerably over the past year.

While these factors bode well for the years ahead, the trading environment will probable remain challenging for some months to come.

Household finances remain weak given slower income growth and higher debt service costs. However, there have been some encouraging developments. Inflation moderated to 5,9% in September, dipping to just below the Reserve Bank’s upper 6% inflation targeting limit. Inflation is likely to ease further during the remainder of 2014 and into early 2015 as the impact of sharply lower global food and oil prices slowly filter through to local retail prices.

Lower inflation will offer some respite to households, possible persuading the Reserve Bank to leave interest rates unchanged in the early part of 2015. Assuming no further protracted strikes or extended disruptions to power supply occur, economic activity should also recover, buoying confidence and supporting employment.

Together, this should place households on a better financial footing in the first half of next year, which will be necessary to contain the impact of the anticipated rise in interest rates in the second half of 2015, when rising US interest rates are expected to put pressure on the Rand, adding upside risk to inflation heading into 2016 and onwards.

Although the immediate outlook for the residential property market remains murky, a stronger and more sustainable recovery is expected later in 2015 once employment picks up and income growth recovers more convincingly to offset the impact of higher interest rates.

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Article by Nedbank Summer 2015 home diaries newsletter.

http://www.nedbank.co.za/website/content/homeloans_microsite/docs/Nedbank-Home-Dairies-Summer-15-1.pdf