WORDS: DEBBIE HATHWAY :: PHOTOS: SUPPLIED
We look at themes shaping the global and domestic markets and how they affect housing and interest rates.
Across the globe, inflation is on a decelerating path. This trend has allowed central banks to signal the end of their interest rate hiking cycles. In other words, interest rates are expected to stabilise or even decrease soon, according to the latest FNB Residential Property Barometer.
In the bank’s domestic assessment, interest rates appear to have peaked. They anticipate a measured cutting cycle in the latter half of 2024. However, it’s important to note that this forecast carries an upside risk bias. This means another rate hike is possible if the Federal Reserve decides to raise rates further or if inflation surprises them by rising unexpectedly. In the medium term, the risk leans toward the downside, where unexpected declines in the Federal Funds Rate or domestic inflation could prompt the South African Reserve Bank (SARB) to implement rate cuts sooner than currently projected.
GLOBAL HOUSING MARKET
The global housing market is experiencing a moderation trend after a robust resurgence in 2021 and 2022. This moderation can be attributed to the rising cost of debt and inflation, straining demand. Real house prices are declining in many countries, but the underlying factors differ between advanced and emerging economies.
In advanced economies, prices are retracting from previously high levels. This is partly due to relatively resilient labour markets and shortages in housing supply. In contrast, emerging markets grapple with elevated real interest rates, sluggish income growth, and high or increasing unemployment rates, especially among younger demographics. These challenges are resulting in subdued demand from first-time buyers.
ESTATE AGENTS’ FEEDBACK
The FNB House Price Index recently showed a slowdown in year-on-year growth, dropping to 1.1% in July from 1.6% in June (revised from 1.7%). This aligns with the ongoing decline in property buying activity, with mortgage volumes returning to pre-pandemic levels. Additionally, the average bond amount declined by about 3% in the second quarter of 2023, marking the first decrease in 14 years. Tax data also reveals a 10.3% drop in property transfer duties compared to the same period last year, signalling a trend of buyers scaling down their preferences. Tighter lending standards, higher borrowing costs, and affordability constraints drive this trend.
Feedback from estate agents underscores a widening gap between income levels and current house prices, with 45% of surveyed agents noting that income levels lag house prices. Consequently, more sellers have had to adjust their expectations and reduce their asking prices, with 81% of sellers doing so in the second quarter of 2023. However, regional variations are evident, with more robust performance in the Eastern and Western Cape regions.
In summary, the housing market is experiencing subdued growth, influenced by various economic factors. The outlook for interest rates suggests a possible decline in the latter half of 2024, but uncertainties persist, especially in the short term.
HOUSE PRICE GROWTH SLOWS IN JULY
The FNB House Price Index growth slowed to 1.1% y/y in July, down from 1.6% in June (revised from 1.7%). This aligns with the continued decline in buying activity, with mortgage volumes now tracking closer to pre-pandemic levels. The average bond amount, estimated from deeds data, declined by approximately 3% in 2Q23, the first decline in 14 years (since 2009).
Similarly, year-to-date tax data reveals that property transfer duties are down by 10.3% compared to the same period last year. In addition to lower demand, these indicators signify a downscaling trend by buyers, along with a tightening of lending standards amid higher borrowing costs and affordability constraints. Notably, our internally developed market strength index, derived from the bank’s property valuers’ database, implies a measure of resilience in the lower price segments, presumably sustained by higher-income households exploring more budget-friendly alternatives.
As previously indicated, the available data suggests comparatively stronger price growth in lower-priced segments, with price declines observed at the upper echelons of the market.