What do Sharks rugby and the Property Market have in common? Well according to leading FNB property economist, John Loos, possible quite a lot. In a light-hearted approach to how statistics can be applied, Loos has produced an amazing correlation between Sharks victories and recessions, as measured by real economic growth rates. Loos makes the point that economic models have only successfully predicted two out of the last ten recessions, while his “Economics of Rugby” economic model has predicted three out of the last three recessions.
Plotting real economic growth rates against historical Sharks victories, it implies that each time the Sharks reach an important milestone in their rugby history, South Africa has suffered a recession. In 1984, the former Bulls legend Wynand Claasen led the Sharks to the Currie Cup Final, emerging from the Currie Cup B section at the time, having dealt the Free State a stunning defeat in the semi-final. Western Province proved too strong for the Sharks in this final, but the stage was being set for the dramatic rise of Sharks rugby. This event was immediately followed by the 1985/86 recession. In 1990 Ian McIntosh’s underdogs caused a massive upset at Loftus taking down Naas Botha’s highly favoured Northern Transvaal 18-12 after a match winning try from winger Tony Watson, and securing the Shark’s first Currie Cup title. This inaugurated the “Golden Era” of Sharks rugby, which lasted until 1996. And what happened to economic growth over this period? South Africa experienced the mother of all recessions spanning almost three years, and anemic economic growth for most of the 1990’s decade. A 12-year trophy drought set in from 1996 until 2008 for the Sharks. Loos, a Blue Bulls supporter, refers to this period as the “Bull Run”, where we see real economic growth rates boom. In October 2008, the trophy drought was broken for the Sharks. With Kiwi John Plumtree in charge, the Bulls were defeated 14-9 in the final, with a slightly younger Beast Mtawarira, JP Pietersen, Bismarck du Plessis, Keegan Daniel and Ryan Kankowski making their presence felt. South Africa was again plunged into recession in 2008/2009. The amazing Super Rugby run of the Sharks to make the final against the Waikato Chief’s on Saturday 4th August 2012 therefore alerted Loos to send out his “warning” of a pending recession. The only consolation Sharks fans such as myself can take from the nasty 37-6 defeat to the Chiefs, is that this could mitigate the extent of the “almost certain” decrease in real economic growth to follow.
This superb analysis delivered by Loos is said tongue in cheek and goes to the heart of statistical causality, which first year Statistics students are introduced to at University. Co-inciding or even leading events do not imply causality. The adage “Lies, Lies, Lies and Statistics” comes to mind, which is rather cynical but does indicate that an intelligent application of statistical analysis is required if we are to be able to determine causality between various time series of data. Fortunately the world’s markets, including property markets, move in cycles. As long as we can determine the trends and where we are in a given cycle, this provides an excellent guide as to what we can expect over the medium term. We are currently on the initial stage of the upward curve following the 2009 low point. Although the economic recovery is fragile and threatened by the European banking and sovereign debt crisis, a slower than expected recovery in the US and the large emerging, resource hungry, countries such as China and India now experiencing far slower growth rates, our current state is significantly better than three years ago.
Property companies that survive and thrive are those that adapt quickly and are able to see where the market opportunities emerge. Within our greater Ballito area, the most active segment of the market is below R2m, and the least active segment is currently the properties priced above R15m. Value remains the driver for attracting buyers to any given property across all price segments. Over-pricing is probably the most common mistake made by Sellers. Pricing of many properties along the Dolphin Coast is on average 25% below market peak levels experienced in 2006/2007 and is unlikely to recover significantly until the availability of mortgage finance through the main South African commercial banks is considerably easier. The decrease in the Reserve Bank’s repurchase rate by 0,5% on 19th July 2012 and the resultant decrease in mortgage interest rates to 8,5%, the lowest level since January 1974, is a positive sign that the cost of money can be expected to remain low for a while. The impact on demand for property due to a slightly lower interest rate, is not what it used to be and we are not expecting any significant change in buying behavior due to this. Households are currently re-building their balance sheets, reducing their overall household debt to disposable income ratio and adopting a far more cautious approach to acquiring assets that require debt finance. Non-income producing properties are being sold as quickly as possible. Vacant land opportunities abound, many at such competitive pricing which would have been regarded as unlikely a few years ago, as people holding land become fatigued by the cash drain the monthly rates and taxes and financing costs impose. The excess supply of homes that developed during the boom times is slowly disappearing. Rental rates are beginning to recover as more people rent than buy and the available stock of rental opportunities decreases. The resurgence of first time buyer activity is a positive sign and is providing mortgage lenders with a large component of their business and developers focusing on the price bracket between R800,000 and R1,5m a willing and able market for their product.
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