2009/01/22

Job losses will be a prominent factor in 2009 having an adverse impact on the property market.

Jacques du Toit, senior property analyst at Absa Home Loans, says while rising inflation and soaring interest rates have been the two chief threats to the residential market until now, job losses have now been added to the mix. "Further job losses will result in homeowners not being able to afford their bond repayments and prospective buyers being excluded from the market."

He says although weaker growth in employment figures doesn't directly affect the housing market, it does have an eventual impact on it via the macro-economic environment.

Weaker economic growth leads to job losses, which affects households' income and this spills over to the housing market due to the reduced demand for housing, he says.

"It affects households' ability to pay, which has always been a key factor for banks as far as credit lending is concerned."

According to the SA Reserve Bank's (SARB) quarterly report the growth in employment dwindled to 1,5% in the second quarter of last year from 3,9% in the first quarter. He says it's a fair assumption that this trend continued during the remainder of 2008.

Residential markets around the world are already hard-hit by unemployment. House prices in the UK fell for the third consecutive month in January due to rising unemployment figures, the British property website Rightmove recently revealed.

The average house price in the UK was 7,3% lower year-on-year (y/y) in January.

The Ernst & Young Item Club predicts that British house prices will be falling by another 22% over the next 18 months. The unemployment rate in Australia is currently 4,4% and it is expected that it could reach 8% this year, according to the property news service Property Wire. House prices could plummet in Australia if these figures materialise.

It is expected that residential property prices in Dubai could fall by 60% after peaking in July last year, reports the Daily News. It is predicted that the population in Dubai could decrease by 5% due to job losses.

Du Toit says the chain reaction stemming from the macro-economic environment will not prevent the SA housing market from completely eluding this situation.

Absa expects nominal house prices for the full year to drop by 2,5% and prime interest rates to fall by 2,5% from 15% to 12,5%.

However, lower interest rates won't mean anything to those losing their jobs. – Elma Kloppers, Sake24