There are some early signs of improvement in household sector fundamentals in 2009.

So says John Loos, property strategist at FNB, who adds that these signs are due to the household debt-to-disposable income ratio now declining, and household inflation and interest rates starting to head in the right direction.

"This is great news for the market, and is expected to translate into a declining household debt-service ratio (cost of servicing debt as a percentage of disposable income) through 2009. An expected series of interest rate cuts to 12% prime by late next year, and declining inflation supporting real disposable income growth mildly, is expected to lead to a gradual rise in residential demand as 2009 progresses."

He says the emphasis is on gradual, because against these positive drivers we have to face the negative impacts of a global economic slump on our exports and thus on our economy, which is expected to grow slower and shed more jobs for a while.

"Therefore, positive year-on-year (y/y) growth in new mortgage loans is only anticipated in the second half of 2009, while the return of positive y/y house price growth, after an expected average deflation rate of -3,7% next year, is only anticipated in 2010. The reasoning behind the lag in the response of average house prices to improving demand has to do with the belief that there is still something of an oversupply of property on the market, which would take some time to get mopped up," Loos says.

"In short, therefore, we have received a host of good news recently which has to do with an improving inflation, interest rate and household credit situation. But patience is required, as 2009 will probably still see the market battling against very weak economic growth," he concludes.

www.property 24.co.za

20/12/2008