South African house price growth expected to slow

FNB Senior Economist Siphamandla Mkhwanazi expects the growth of house prices to slow to around 2% this year compared to 3.5% in 2022, and there are more risks of prices decreasing.

The impact of weakening consumer finances on house prices has been stronger than anticipated, especially in the higher-end market. However, lower-income households are facing more financial pressures.

In addition, the FNB House Price Index showed that the annual growth of house prices decreased in May to an average of 1.9% compared to 2.1% in April. 

This is mainly due to high living costs and increased borrowing and debt-servicing costs, making houses less affordable, especially for lower-income groups. 

However, the lower end of the housing market still has strong price growth, while properties valued above R5.5 million have seen significant declines in value.

The supply of houses for sale is increasing compared to the demand, causing properties to stay on the market longer.

The South African Reserve Bank has implemented a cumulative 125 basis points of interest rate hikes this year, bringing the repo rate to a decade-high 8.25%.

Mkhwanazi expects the SARB to hike the rate by another 25 basis points at its Monetary Policy Committee meeting in July, which would bring the repo rate to its projected peak for the year of 8.50%. After that, interest rates are expected to decrease gradually, starting in the second half of 2024.

In addition, global inflation has decreased from its recent highs, but there are concerns about inflation in emerging markets.

This could be due to exchange rate pressures and higher wages and core inflation caused by the rising cost of living. 

FNB predicts that inflation this year will be around 6.2%, slower than last year but higher than the average of the past five years.