With the hawkish statements by Reserve Bank governor Tito Mboweni, the market now expects a repo rate hike of 100 basis points this month, taking the prime interest rate to 16 percent, and a chance of another 50 basis points in August.
Based on the terms of First National Bank (FNB), this would increase monthly repayments on a R250 000 home loan over 20 years to R3 478 at 16 percent from R2 496 in June 2006, when prime was 10.5 percent.
John Loos, FNB's home loans property strategist, said times in the residential property were tough. The list of negative influences included: rising interest rates, rising inflation, a slowing economy, National Credit Act obligations, post-Polokwane jitters, Eskom shortages, the Zimbabwe crisis, xenophobic violence and low income yields.
He said: "The list has become significantly longer than previously anticipated, and especially interest rate hiking has gone further than we had forecast. As a result, a 21 percent decline in the value of new mortgage loans and re-advances is projected in 2008, and a period of national house price deflation is now forecast."
According to Lightstone Risk Management's national house price index, annual property inflation dropped to 7.8 percent in April, half a percentage point lower than in March and significantly lower than last April's rate of 14 percent.
Lightstone found that higher value areas appeared to be performing the worst and might have moved close to zero or even into negative nominal growth. Furthermore, house price inflation appeared to be declining the fastest in the smaller provincial markets.
The index said: "Although nominal house price inflation is still positive, one major difference from last year is the decline in real house price inflation (adjusting for consumer price inflation).
full story from Business Report here