WILL 1980’s HOME EQUITY PLUNGES HIT SA PROPERTY?

When it comes to affordability, the housing market has never looked better for many people. However, if you are looking for equity in house values some people are starting to say that things have not looked so bleak since the mid-1980’s when stagflation in South Africa affected the economy for almost decade.

As a residential “double dip” in the US market becomes a reality, Robert Schiller, co-founder of S&P Case-Schiller property index , predicted that American property values could decline from 10 to 25 percent more over the next five years. He believes that US unemployment, a backlog of foreclosures that is deciding builders from new construction and possible inflation will all combine to create their lowest home values seen since the Second World War.

We should note that Schiller does tend to be incredibly pessimistic, and that other experts like Brian Menuhin (a notorious optimist and Bank of America CEO), have said that additional declines in home equity are likely to be “incremental.”

In 2001, average home equity, was more than 61 percent. This year in the first quarter, it was 38 percent according to a Federal Reserve report released last wee. These are the lowest equity levels since 2002.  However, most analysts agree – even if they disagree with each other – that making predictions is hard during this time period. “There is no precedent for this statistically, so no way to predict,” admitted Schiller. Household debt is actually decreasing, although this is due “entirely to a decline in mortgages” according to the Fed. In this case, we may just have to watch, wait and see.

So if that is the discussion in the world’s largest housing market, do you think South Africa could see home equity plunges to 1980 lows or is this just an American or European correction?

Your views are eagerly awaited.

Regards

Rael Levitt