Property market comments alarmist

Recent alarmist forecasts by property market commentators, many of which are unsubstantiated by facts, have caused homeowners undue concern according to SA's largest bond originator.

Saul Geffen, chief executive of ooba (formerly MortgageSA) said that he disagrees strongly with suggestions that prices have already dropped by as much as 15% and that further dramatic falls lie ahead.

"ooba's national stats show a 4% decrease in average bond value for May 2008 against May 2007. However, May 2008 was the first monthly drop in ooba's average bond size since April 2007. This is a result of a combination of negative pricing pressure and greater deposits being required."

ooba's average bond size for the 12 month period to April 08 is still up 7% over the same period to April 07.

Absa's latest house prices index shows 4.3% growth for May, while Standard Bank's price on medium sized homes shows a 13.2% decline for May.

Geffen also refuted claims that the reason that some banks now want deposits up to 25% on higher priced new home lending is because they expect the property market to fall a further 25%.

'It is true that the banks have constrained lending on high value loans. Lending criteria vary widely between different banks; typically loans up to R2.7m now require deposits of 5%, between R2.7 and R4m, a deposit of 10%, and greater than R4m, 15% to 20%.'

It's only on vacant land loans that some banks are requiring 25% deposits. The banks do still offer 100% loans to first time buyers and the affordable housing market.

'But a key reason why the banks have required greater deposits is to create a buffer for additional interest rate increases. This buffer improves the security and creates flexibility to the extent that they need to restructure the loan in the event of default.

"The banks may be concerned that the top end may come off more than the middle and lower end; however the required deposits should not be linked to expectations for similar declines in the value of the properties."

Geffen points out that the major banks are still offering 100% homeloans, particularly for first time buyers and affordable housing. Some have capped 100% loans for bonds up to R1m, but others are more flexible.

Geffen advises homeowners not to get swept away by the scaremongering headlines and to remember that current weakness is a short term situation.

"There is the potential for further price decreases but it is unlikely to be as much as 25% or 40%.

"The market is expected to recover as soon as the interest rates drop and that should be towards the end of 2009 with strong house price growth expected for the next 3 to 4 years thereafter."

Geffen notes that in the short term, he expects negative real house price growth to continue as all three key measures of affordability have shown deterioration: household debt to disposable income; mortgage instalments to disposable income; and house prices to disposable income.

"For the property market to recover, inflation must moderate, interest rates must fall, personal income must grow and house prices must continue to exhibit low growth so that housing affordability improves and drives housing demand.

Geffen also said that first time buyers and those looking to invest further in property were being presented with a 'buying opportunity'.

"However there is a lot of variation in lending criteria at the moment - if one bank turns down an application, there is a good chance the other banks may grant finance. So make sure you shop around."

ooba's stats show that 40% of all the home loan applications declined by one bank are approved by the other banks it sends the application to. So although bank declines are up 10%, ooba has only experienced a 6% increase in declines given its ability to shop the loan to the other major lenders.

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