It appears estate agents, house investors and other stakeholders in the housing market have experienced serious anguish and denial following the launch of Rode’s Report (quarter four of 2011) on 26 January 2012. At the press conference at FNB’s offices in Fairland, Johannesburg, I stated that houses were fundamentally overvalued by at least 25 percent.  Furthermore, that house prices will, as a consequence, decline in real terms over many years (unless one assumes a quick collapse like in the USA).

Estate agents’ anxiety can be understood as stagnant prices tend to be associated with fewer transactions and, therefore, less commission. Naturally, the messenger is to be blamed.

Our findings have three crucial implications:

• Pertaining to mortgage lenders; prudent lending practice would dictate that 100 percent mortgage loans should be the exception. The claimed tendency for banks to once again start reverting to 100 percent mortgages is disquieting.

• In the absence of expected capital appreciation the man in the street who is contemplating buying his first house, or who is relocating, should consider renting rather than buying. This is so because renting is now (and has been for many years) much cheaper than owning, with the help of your friendly banker. It is a false argument to say, "I do not want to make a landlord rich" when one makes a bank "rich" by paying interest on a mortgage bond!

• Housing developers and building contractors face a prolonged period of modest activity.

By its very nature, a press conference has to be succinct and contain a minimum of technical clutter. In the process of converting technically robust analysis to popular text some of the substance inevitably gets lost in translation. For this reason, and because of the uproar, I have decided to reproduce the article that appeared in Rode’s Report, to expand it slightly and to end this newsletter with a rebuttal of some of the criticism levelled at our method.

For the record, I suspect that many property practitioners and laymen who commented in the media did not understand my prediction as they did not read the actual research article in Rode’s Report. This is painful to me because it implies that there are property professionals out there who do not subscribe to Rode’s Report!

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