House prices normalising

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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.

Crisis continues, capital revalues itself

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Crisis continues, capital revalues itself

The global financial crisis has been hitting hard for months now.

There is fear, serious fear that it is the end of capitalism as we know it.

Well it may not be such a bad idea to constrain the worst excesses of capital.

The South African National Credit Act was a big help in allowing us here in SA to so far weather the crisis much easier that many other, and more developed, countries.

Who would want to live in Iceland? As a fellow from there put it, we had a great country and they ruined it.

The nature of capitalism is that it decouples the nominal worth of stuff from the actual worth of stuff.

As value gets more abstracted from its actual physical value it becomes easier to manipulate and all sorts of dodgy schemes get hatched. While this surplus value creation is in full swing, the old fear and greed factors that run the markets kick in, and kick in heavily.

Folks get greedy and believe that the endless Bull Run is for real, or they get scared that they are missing out and that a zero sum game is forcing them to get the other guy before they get got themselves.

The reality is that the zero sum game does not really exist. There is never a perfect interchange that will lead to a zero sum outcome. It suits the suits to talk the talk using these loaded terms, it helps to vest interest.

The difficulty is that many people who believed that the housing market would go up forever, who believed the 'you just have to get on the property ladder, dahling' shpiel, who feared that if they did not buy this house right here right now, some one else would take it and turn them into a loser.

This kinda zero sum thinking helps the market to inflate itself way out of what its real value is. It sets up a kill or be killed kinda of thinking.

This out of kilter valuation must at some point correct itself.

That correction is now.

The South African housing market has been over-heating for years. Now its time to come back down to real values.

It could be worse.

In the US thousands have been made homeless by the packaging of mortgages together in order to spread risk, but too much notional value was created, and that value was dependent on the market rising and continuing to do so.

The NCA helped to cool down some of the reckless lending that was taking place here previous to its promulgation.

Not nearly as many people will be affected here as there. Our interest rates are turning and the housing market is cooling considerably. It is easy to see this as a bad thing, but the reality is that these corrections need to be enacted to stave off a worse crash further into the future.

As our housing market softens it will turn into a buyers market and there will be some great homeloan deals to be had. You may also be able to save money every month by renegotiating your mortgage and by consolidating your debt. If you are feeling the pinch, get yourself some debt counselling in order to protect your assets until the circle turns.

How to save up enough for a house deposit

How to save up enough for a house deposit

The housing market is suffering and there are fewer and fewer people who can even afford the deposit on a house. Some banks are already requiring up to 20% of the price of a house before they will advance the bond.

Justmoney.co.za, SA's online guide to money asked the big banks to recommend a savings product that would help you to save for a house deposit.

So we started looking at a baseline R1 Million house and figured with a 20% deposit you would need to save R 200 000 to put down that deposit on your dream house. We also wanted to do it over a year so you can see how much you would have to save every month to get that deposit built up in a year's time.

Here are the products that the banks recommended:

Standard Bank

Standard has two products that they recommend: The Market Link and 32 Day Notice Accounts. The major difference between them is that you have instant access to the Market Link account while the 32 Day Notice requires, well, 32 days notice to withdraw funds. Based on current interest rates, which are subject to change, The 32 Day Notice account requires you to deposit R 15 800 every month and by the end of a year you will have R 200 155.12. With The Market Link account depositing R 15 800 per month would realise you R 200 126.21. By keeping your savings in the account you would have earned R 10 526.21 in interest!

Now, consider the amount that would be required as a repayment on a home loan of R800 000 (i.e. a R 1 Million purchase price less a deposit of R200 000.) A bond of R800 000 will require a monthly repayment of approximately R 10 534.32, at an interest rate of 15% over a 20 year period.

So by saving, you are in actual fact providing yourself with the following benefits:

- You are preparing yourself for the repayments required on the home loan, so that you can make sure that affordability will not be a problem.

- You are reducing the total value of your bond and as such the monthly repayments you would have needed without a deposit i.e. R13,167.90 vs. R 10,534.32 per month

- You are saving approximately R432 000 in interest on the R200 000 over the 20 year period

In today's current economic climate, saving is definitely a way to start improving your financial situation.

Nedbank

Nedbank recommended their Park-It product. This is a fantastic savings vehicle that allows you access to your cash with only a 24 hour notice period after you have kept the cash in your account for at least 14 days. They currently offer a top end savings rate of 11% which means that you would have to deposit R 15 843 per month for the whole year in order to get that R 1 Million Rand house. An account that does not pay any interest would require you to deposit R 16 667 per month, but the Nedbank Park-It account delivers a very competitive rate of interest.

FNB

FNB recommended three of their products the 32 Day Interest Plus, the Money Market Investor and the Flexi-Fixed deposit account. The 32 Day Plus offers an interest rate of 9.45%, The Money Market Investor offers 10.40%, and the Flexi-Fixed offers 10.75%. As the amount kept in your deposit account increases you get a higher rate of interest.

ABSA

ABSA recommended their 32 Day Notice or Moneybuilder accounts if you don't have a large lump sum to invest. The 32 Day Notice pays up to 10.45% interest and the Moneybuilder up to 9.90%. The Moneybuilder has the bonus of allowing two 2 free inter-account transfers a month so you can use it to pay bills with the interest if you have a large balance and not touch the capital. But for saving up for a house the 32 Day Notice pays better interest.

In conclusion, we can see that it takes a lot of discipline and the ability to put away large sums of money every month in order to save up for a house deposit under the current economic climate. The best thing to do is to set yourself a savings plan, find the best savings account for you and then be disciplined and set up an automatic debit from your account to your savings every month. If you never see that money you will never miss it, but you will be in for a nice bonanza after your savings period is completed.

Justmoney says that the more you save the safer the economy gets and when things start to come right again, you could be looking a tidy deposit for a styling new house.

A version of this article can be found on imod.co.za