Gideon Hanekom and Nolan Allnutt, the new Anne Porter Knight Frank agents for Kirstenhof, Tokai and surrounds, have compiled a graph showing interest rate fluctuations from 1986 to the present day - a period of some 21 years.
"A study of this graph," said Allnutt recently, "should boost confidence among the more timid buyers and knock out some of the wild talk and pessimism that is currently being experienced in the residential property sector."
The graph, he said, shows clearly that the current interest rate level of 14,5% is lower than South Africa has had for 14 of the last 21 years. But for all except two of those 21 years, sales countrywide had been satisfactory. It was only in the 1997/1998 period, he said, that sales actually tapered off markedly.
Throughout the period from 1987 to 1993, added Allnutt, a period which is often harked back to because throughout that time interest rates remained very steady, the rates had in fact been some 1,5% higher than they are now.
Caption: Interest rates go through periods of "natural" cycling as can be seen on this graph from 1994 to the present, with three clearly visible cycles. If a straight line is superimposed on these cycles, it clearly reveals a downward trend in the overall interest rate.
"What this graph is telling us," said Allnutt, "is that rates are not excessive and, secondly, after possible further 0,5% or even 1% rises later this year the rates are almost certain to go into a decline, which will be very beneficial to the housing market. Some economists are predicting as much as a 2% to 2,5% decline by the middle of 2010."
"Interest rates go through periods of "natural" cycling as can be seen on the graph from 1994 to the present, with three clearly visible cycles. If a straight line is superimposed on these cycles, it clearly reveals a downward trend in the overall interest rate. This is something to keep in mind."
Referring to certain Standard Bank figures, Hanekom said that a 9% to 11% price growth had been the average in the South African housing market over the last 30 years and this, he said, is a satisfactory return "however you measure it".
In the territories that they serve, said Hanekom, demand and price increases continue to be above average because land remains in short supply and so many people see these suburbs as the ideal stepping up area to take them into the middle and upper middle categories.
Click here for a full list of reigning prime interest rates over the years.
For more information contact Gideon Hanekom and Nolan Allnutt on 021 671 9120 or email tokai@anneporter.co.za.
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A statement such as: "What this graph is telling us," said Allnutt, "is that rates are not excessive and, secondly, after possible further 0,5% or even 1% rises later this year the rates are almost certain to go into a decline, which will be very beneficial to the housing market", demonstrates just how out of touch many economic analysts are with what is happening in people's lives.
To come to the conclusion that rates are not currently high, is like the weather forecaster telling us that the sun is shining when it is raining outside. It is simply divorced from reality.
The mere fact that for 14 of the past 21 years rates have been higher than at present, is no basis whatsoever to advance such an argument. The only basis for making such an argument is if levels of debt remain the same, then an accurate basis of comparison prevails.
I currently live in a house that I bought five years ago for R600k. Today it is worth just over R2m - according to estate agents who are trying to persuade me to put it on the market. This is an accurate assessment as two neighbours in the same complex have recently sold their similarly sized homes for approximately the same amount.
However, for anyone buying, the cost of mortgage finance as part of an ordinary wage earners income, would be very hard pressed to pay a mortgage on even 50% of the purchase price at current interest levels.
This demonstrates just how ludicrous this type of fallacious "statistical argument" is.
The reason that property has gained the kind of massive growth in value that it has in such a short period recently, is precisely because of historically high interest rates which created artificially pent up demand in the economy. The same will happen again if the present interest rate squeeze lasts for any appreciable length of time. What this demonstrates is that historically viewed, interest rates have been far too high for far too long and as a result, when they reach realistic and affordable levels, the pent-up value in the market is then liberated and equilibrium is achieved. - Malcolm Ferguson
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