House prices normalising
The news is new, that is what it does.
Some stories have legs and keep going some come back again and again. With the state of the world financial system at the moment the bad news just never seems to go away.
Then again as the saying goes bad news is good news. There is a pleasure, a schadenfreude, to be had in viewing other people's difficulties, but then again what if it happens to you?
The world economy is set for a possible 0% growth this year according to Business Report. This projection was made by the head of the International Monetary Fund, and is a further reduction from the previous IMF estimate of 0.5%.
The world economy was expected to be turned around by next year after the banks had cleared up their balance sheets and got some of their bad debt off their books.
Business Report also told us that the housing market here in South Africa was sliding into recession. While this will have an effect on home owners what we need to remember is that those astronomical house valuations are all very well and good on paper, but that they are not actually connected to the value of the real house.
Getting the capital out of your house investment is the big issue, and don't forget until you pay your house off, or manage to sell it, it belongs to the bank and is a liability not an asset.
So while the housing market 'crashes' sit back and do those DIY jobs that you have been meaning to get around to.
The value of your house, the real actual value of your house, based on the actual physical house itself is going nowhere.
The book value of your house is the one that is correcting.
So rather fix your house up, and wait for the possibility of actually getting the real value out by selling your property.
As the Business Report article put it 'Two years ago, the property market was overheated. Sellers were demanding what they thought was a reasonable price and getting it. What we have now is a return to normality'.
This return to normality is the process where by the speculative bubble is deflated so that book value and actual value are related to each other rather than seeming to be entirely separate species as they have been last few years.
Business Day noted that demand for new houses has fallen. There has been a lot of speculative building based on the expectation that the market would continue to rise.
This is often a fatal flaw and the American sub prime meltdown was caused by this type of thinking.
However subsidised low cost housing has retained its value. This shows us that the higher priced houses are the ones that have been inflated beyond their real values, while a real physical house is still the same physical house. It just needs its book value to be inline with that real value.
You can check with our bond specialists if you would like to get a home loan. Just make sure that you don't over pay for a house as prices are still coming down.
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