Bad news for home owners in South Africa

House price growth stagnated in January as price growth bottomed in the fourth quarter of 2023. However, hope still remains for an upward trend in the second half of 2024.

The FNB House Price Index growth averaged 0.6% year-on-year in January 2024, unchanged from December 2023.

FNB said the sideways movement in house price appreciation is consistent with its view that price growth bottomed in Q4 2023.

However, it could also indicate that a discernible upward trend should commence in the second half of this year once affordability improves. 

Market strength indicators suggest that both demand and supply of properties for sale are contracting and by a similar magnitude. 

Following the above-trend transaction activity between 2020 and 2022, demand for residential property is expected to have reached its lowest point in 2023. 

Mortgage volumes have decreased by 28% due to affordability constraints that are keeping potential buyers away, as well as individuals searching for more affordable properties. This has been reflected by the compression in average loan sizes. 

Similarly, data suggests that house price growth may also have reached its trough in the fourth quarter of 2023 – its lowest level since the Global Financial Crisis. 

Nevertheless, lower-priced segments outperformed, reflecting the buying-down effect and the persistent supply deficiencies. 

Meanwhile, some high-value segments, particularly in regions along the Western Cape coast, gained support from the semi-gration trend, which now seems to be normalising.

Affordability pressures should ease somewhat, but a rapid rebound in activity and house price growth is unlikely this year. 

“We project home buying activity to move sideways in the near term, at levels 10% below the pre-pandemic average – between 2015 and 2019 – but to pick up steadily over the forecast horizon,” FNB said. 

The gradual decline in inflation and borrowing costs, combined with employment gains, should modestly stimulate demand in the interest-rate-sensitive segments over the medium term. 

This could see volumes return to normal by 2025. 

In the longer term, volumes should stabilise modestly above pre-pandemic levels, supported by improved sentiment, employment and income gains, lower interest rates, faster population growth and innovation and widening access to credit markets. 

“We expect volumes to grow by 0.8% this year before lifting by 12.7% in 2025.”

From a valuation perspective, the subdued house price growth trajectory is likely to persist for a little while until the lagged impact of lower inflation and borrowing costs filters through from late 2024 to early 2025. 

In the longer term, FNB expects price growth to be supported by –

• Improved GDP growth
• Stronger demand for housing
• Improved structural affordability following the persistent real house price correction since the global financial crisis

“We expect the FNB House Price Index to average 1.4% this year, relatively unchanged from the 1.5% in 2023, before lifting to 3.0% in 2025.”