Bad news for South African home-owners

FNB Senior Economist Siphamandla Mkhwanazi said property buying activity continued to decline, and house price growth slowed in September.

The FNB House Price Index growth slowed to 0.6% year-on-year in September, down from 0.8% in August.

This takes average house price growth to 0.9% in the third quarter of 2023, down from 2.1% in the second quarter. 

FNB’s internally developed market strength index continued to show declining levels of demand, while the supply of properties for sale also declined in August. 

As such, FNB expects a low house price growth trajectory to continue in the next few months until inflation and borrowing costs ease more meaningfully in the second half of 2024.

He said FNB expects that interest rates have reached their peak, with a measured cutting cycle coming into view in the latter half of 2024. 

However, the short-term prospects for this forecast carry an upside risk, particularly if upward pressure on food and fuel prices intensifies and the government’s fiscal position deteriorates.

Year-to-date – January to August – house price appreciation averages 1.8% versus 3.5% in 2022 and FNB’s prediction of a 1.7% average for 2023.

FNB said buying activity continued to decline in the third quarter of 2023, with volumes now at pre-pandemic levels, suggesting widespread downscaling in the market.

In addition, the declining trend in vacancy rates in the rental market may be stalling. Incoming data suggests that vacancy rates remain above pre-pandemic levels, reflecting an incomplete recovery.

Feedback from the company’s latest Estate Agents Survey also suggested that two-thirds (67%) of listed properties now take three months or more to sell, up from 56% in Q2 2023. 

Market activity moved sideways and recorded a rating of 5.1 out of 10 in Q3 2023. 

At this level, agent activity rating remains below the long-term average of 5.9 and considerably lower than the most recent peak of 7.1 recorded in Q4 2020.

Year-to-date – January to June – National Credit Regulator (NCR) data shows that the volume of new mortgage transactions has declined by 18%. 

Compared to Q4 2021, at the onset of the current interest rate hiking cycle, mortgage transactions have declined by approximately 24%. 

Nevertheless, the extent of the decline in activity has been relatively shallow compared to the global financial crisis period.

Correspondingly, agent expectations for the housing market showed some optimism in Q3 2023, with 50% of respondents expecting an increase in activity in the next three months, compared to 17% in Q2 2023. 

Factors cited for this optimism include expectations that interest rates have peaked as well as the customary increase in activity during the summer months. Less severe load-shedding in recent months has also boosted sentiment in the market.

The results suggest that the average time that properties are on the market for sale has shortened marginally to 11 weeks and five days (82 days), compared to 85 days in Q2 2023. 

The slight improvement was likely due to less severe load-shedding disruptions in the quarter.

While these factors would have weighed on estate agent sentiment in Q3 2023, this was counteracted by better-than-expected load-shedding disruptions as well as expectations of a peak in interest rates. 

As a result, the proportion of estate agents who are satisfied with current market conditions increased from 38% to 46% in Q3 2023 and still reflects broadly weak market enthusiasm.