'Rate decision won't derail housing demand growth'

Tuesday's repo rate decision by the SA Reserve Bank (SARB) is not expected to derail housing and mortgage demand growth, FNB property strategist John Loos said.

Commenting on the SARB's Monetary Policy Committee decision to keep the repo rate unchanged at seven percent, he said the predominant prime rate would remain at 10.5 percent.

"Given that residential property is so strongly credit-driven, and thus heavily reliant on interest rate moves, the sideways movement of interest rates begs the question as to for how much longer residential demand can continue to accelerate," Loos said.

He said views about how long it would take for the full impact of earlier interest rate cuts to filter through entirely into the economy often ranged from 18 months to two years.

"That would suggest that somewhere late in 2010, as we get to near 18 months since the final rate cut in 2009, and assuming that rates remain flat for the entire year, we would probably be getting near the end of the stimulus from last year's cuts," he said.

For the residential property and mortgage market, given that they were leading sectors in the economic cycle, this could be closer to the middle of this year, after which accelerating demand should start to plateau.

"Although anticipating residential and mortgage demand growth reaching a plateau later this year, that does not change our expectation that 2010 as a whole will be a significantly better year than 2009," Loos said.

The unchanged prime rate probably implied a decline in real prime rate in the near term, according to the consumer price index (CPI) deflated measure as well as the house price deflated measure, given the expectation of some rise in both CPI inflation as well as house price inflation in the coming months, he added.

"However, the still-positive real prime rate, according to the house price measure, continues to make short term property speculation by-and-large an unattractive pastime," Loos said.

Sapa

Posted at 09:42AM Jan 28, 2010 by Editor in Home Loans  |