The question that he has been most frequently asked since his return from the National Association of Realtors Convention in Orlando, Florida, says Tony Clarke, Managing Director of the Rawson Property Group (who led a large delegation of Rawson franchisees and staff to the convention) is “How is the United States housing market faring and what lessons, if any, does its performance hold for us in South Africa?”
“The short answer to that question,” says Clarke, “is that the first signs of a recovery are now evident. Since March of last year average US house prices have risen from just under $160,000 to just under $190,000 (as measured in July last year). That is a significant increase by any standards.
“Equally relevant, however, is the fact that since early 2009, the average house price, although still fluctuating, has risen and fallen within a restrained $20,000 range. This has led some analysts to believe that the worst in the housing market is now over and that flat-lining followed by further price increases will be the pattern for this year.”
What is this new confidence in the housing sector based on?
Clarke says that although the USA’s general economic growth rate is forecast by the IMF to be only 2,2% this year – other forecasters have put the figure at 2,5% - and although unemployment in the USA is still unacceptably high, the general consensus among the more informative people he spoke to on his visit, is that the FED (Federal Reserve Bank) will continue to shore up the economy for another two to three years. In addition, it will also buy large amounts of US mortgage backed securities each month – probably spending at least $40 billion here. These two positive factors, says Clarke, will stimulate the economy and help reduce mortgage bonds from their current level of 3,5% to 3%, further boosting a revival in the housing market.
“Throughout my visit to the USA,” says Clarke, “it was abundantly clear that people are now aware that the 35% drop since the 2008 peaks has made housing a very attractive option and one which should be investigated.
In addition to the factors already mentioned, says Clarke, the consensus of opinion among Americans was that the much discussed ‘remedies’ to the debt crisis, i.e. big cuts in fiscal spending, especially on defense, and raising individual taxes will very likely be vetoed or toned down drastically by the US Congress.
“If the fiscal cliff reforms are put through in their entirety,” says Clarke, “this would result in the US’s GDP being reduced by 5% and that would undoubtedly cause another slowdown in the housing market. However, most people seem to feel that the revised package for which Congress will settle will result in no more than a 1,5% reduction in the country’s GDP.”
Taking these factors together, says Clarke, it seems that a 2,2 to 2,5% growth rate will almost certainly be achieved in the US this year – and the housing sector will continue to recover.
Already, he says, consumers are responding to the lower price levels (on average $30,000 less per home than those of the July 2008 peak) and house sales are rising month-by-month. It has been estimated that the improved housing performance this year will boost the country’s GDP by 0,3% to 0,4%.
Summing up, therefore, Clarke says he expects improved economic stability in the USA, a slow but discernible improvement in the Eurozone situation and a 5 to 8% increase in the Asian countries will hold the US recession at bay – and keep the housing market alive.
How will this affect the South African housing sector?
“Not much,” says Clarke, “but the good news is that the South African market was not nearly as badly affected as the USA and its recovery cycle is, I believe, at least six to 12 months ahead of the USA. What this means is that although the improvement will be small, South African housing prices will be on a slight but nevertheless rising trajectory this year.”
Freehold houses, he says, are already rising at slightly above the inflation rate and by the middle of this year the sectional title sector will also start showing an improvement.
