Looking at real house prices charted since 1981 for SA, UK and the US it would appear as if SA and the UK are still in for some real house price falls before the cycle has properly corrected.
If we look at the US chart, which started its boom and bust cycle first, real house prices have fallen back to what they were in the peak of 1980. UK real house prices on the other hand are still well above the peak seen in the 1980’s and so are South Africa’s.
Real house prices last peaked in South Africa in 1983 at R725,056 in 2008 money. If the US pattern is anything to go by, could that be the region that real house prices could fall back to in South Africa? Right now real house prices in 2008 equivalent money are R921,513. A fall of 20% would get them back to peak 1983 prices.
So how could this happen?
1. Through further nominal month on month house price falls, like what has been since in SA since April 2010 (although this has flattened out in Jan 2011)
2. Through house prices growing slower than inflation (this is less obvious but has the same effect on real house prices)
If predictions of rising inflation materialise (and already we are seeing rising food and fuel prices) then this could well be how South African real house prices correct themselves.
If you consider population growth, a buffer for SA must be that the population increased by almost 74% between 1980 and 2010, and look at the steep rises since the 60’s. Although the effect on housing is still to be properly felt by the population growth since 1980, some of these and also pre-1980 would be now be featuring in ABSA numbers in terms of the emerging middle class first time buyers.
Still, the US increased by 38.4% and you would have expected the US to withstand a little better given that most of this population growth would filter through into formal housing stats?
The UK is interesting given the very low 9.9% growth, and with fears of inflation there is room for prices to fall in real terms. However, the US and UK house price dynamic could well be impacted by a supply side factor where houses are over supplied in the US and under supplied in the UK.