The Running Commentary

Bumpier Still !!

CPIX trackThe extract below was taken from the Business Report and gives some worrying but very really concerns for home-owners out there (with bonds).

“Standard Bank’s median house price last month dropped by 11.3 percent year on year to R550 000 from R620 000 in June last year, increasing the possibility that some homeowners owe more on their homes than they could sell them for. Its five-month moving average growth rate in the median house price was minus 7.8 percent.”

Add to this the latest petrol price increase and the Eskom tariff increase and the Governors warning of a 200 point increase in the repo (rate at which bank’s borrow money from the Reserve Bank) rate could well be on the cards.

While all of the above point to a very bleak financial situation for the next few months (remember my 12 – 18 month prediction in March 2008), we must acknowledge that we have been forced to this place through our own individual lack of accountability. We need to curb our spending and not view debt as an asset. I find people still out there that view the purchase of the house that they are staying in as an asset, it is not. You are not able to leverage anything but debt from it. As long as you owe money on it, it is a debt, a drain on your finances.

Your vehicle(s) are even worse. Do not buy the car using your access finance on your house, this just means that your car now has a 20 year life span!! as opposed to five. If however you are going to pay the same installments as you were going to pay on a traditional term (48 months and not 60 months with a residual) then use the house because in all likelihood it has a lower interest rate and therefore you will pay it off faster.

Remember take what ever measures your need to to curb your spending (if you have not already done so) Clear the small debt with some urgency, maybe consider consolidating this into your house but remember to keep the repayments into the house at the levels that you were as when servicing the debt. Do not extend your debt burden any further, negotiate every purchase.

The Proudly South Africa Couch Economist!

debtEconomyinterest ratesPetrolrepaymentsSouth Africaspending

Mike • July 2, 2008

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