Or is this a property crash?

It is entirely possible that I was too optimistic. For once. What I said was:

Our house prices will decline further but (political meltdown excepted) I’d bet serious money that we won’t see these declines in 2009 or 2010.

I was talking about the 12.4% decline in US house prices in 2008 and the areas with declines greater than 50%. Now I still don’t expect this as a most likely scenario, but a little more evidence is showing that the possibility exists.

According to Realestate web story:

  • Alliance Group, who oversee distressed house sales, indicate that distressed property sales have jumped alarmingly
  • The Alliance Group believes negative housing equity – where your home is worth less than you owe on it – is now most probably at 1 in 15 South African homes.
  • The Alliance Group Distressed Asset Index tracks mortgage stress, which it has defined as mortgage holders who have been in arrears for two months or less. Mortgage stress has sharply increased from 75 000 in the third quarter of 2008 to 130 000 in the last quarter of the year.

According to a Business Day story:

  • Relating to a particular set of auctions “Yields which were 10% last year are now 13%.?.  In the absence of signficant rental increases, this implies around a 23% decline in house prices.  Even with a 10% increase in rental this implies a 13% decline in house prices.

Ok, so these are just a few anecdotal stories and perspectives from a couple of market players. However, it is clear that not all is well in the property market.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.