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Post-lockdown house price ‘boom’ all but over

Multiple indicators point to slowdown as interest rate impact fades …
With inflation at current levels, and when factored in, house prices are effectively flat. Image: Shutterstock

The mini-boom in house prices from the lows reached during last April’s hard lockdown seems to be over.

The latest FNB Property Barometer shows year-on-year house price appreciation slowed in May, for the first time in 11 months.

Two other indicators tracked by the bank, being volumes of mortgage applications as well as its demand strength indicator, “declined in the past two months, perhaps suggesting that the interest rate-induced demand may have peaked”.

Read: How interest rate cuts grew the demand for property by 35% (Apr 4)

FNB’s house price index increased 4.1% year on year in May from 4.6% in April (Lightstone’s separate house price index printed the same result in April).

FNB says that while indicators show demand is “now moderating”, these “remain above pre-pandemic levels, in part reflecting the positive effect of lower interest rates on market activity”. These are around 50 to 100 basis points higher than the figures in 2018 and 2019, before the Covid-19 pandemic.

However, inflation at that point was noticeably higher than now, meaning that in real terms house prices were in decline. With inflation at current levels, house prices are effectively flat (when factoring in inflation).

Source: FNB Economics

Mortgage trends

FNB says “mortgage credit has been rising steadily since the second half of 2020” as lenders appear willing to lend for asset-backed purchases (“unsecured credit components are trending lower”).

South African Reserve Bank data for April shows domestic private credit contracted by 1.76% year on-year, with a 1.52% contraction in March. This followed low single-digit expansion in January and February.

FNB says loan-to-price (LTP, effectively loan-to-value) ratios have continued to rise but highlights that this predates the Covid-19 pandemic and various lockdowns.

This, it says, “is largely attributed to intense competition among lenders in a thin volume market”.

Buyers in the upper segments (R1.5 million and above) have benefitted most and the loan-to-price segment in this part of the market remains higher than it was in the first quarter of last year. These segments make up the top 40% of the overall market by purchase price.

FNB says “these numbers suggest that liquidity remained intact throughout the pandemic, and upper-income segments benefitted the most”.

It adds: “For Q1 average LTP appears to have retreated slightly, but it remains broadly in line with the 2020 average. At this stage it is too early to conclude that lenders are beginning to slow down; we will need more data points to make this determination.”

Outlook

The lender cautions that while all these “factors are broadly supportive of market activity, they are more cyclical in nature”.

It highlights that “structural factors, such as employment growth, remain elusive”.

“The latest labour market data shows that there are still 1.4 million fewer people employed compared to the same period last year, and that employment gains made in the second half of 2020 were somewhat reversed in the first quarter.

“Company liquidations remain elevated and wage growth is low.”

FNB says “these have been offset by low interest rates as well as the pandemic-induced changes in housing preferences (people choosing home ownership over renting).

Read: SA has ‘extremely bright economic prospects’ – economists (Jun 14)

Positively, it notes” a potential upside on non-wage income, especially dividend income, which could provide impetus for upper-income households”.

“We are also somewhat encouraged by employers’ perceptions about [the] employment outlook, which have become materially less bearish.

“However, this has not filtered through to official employment numbers yet.”

Listen to Nompu Siziba’s interview with RE/MAX Southern Africa CEO Adrian Goslett (or read the transcript here):

COMMENTS   15

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The mini-boom, falsely driven by historically low interest rates, will soon be ka-boom as interest rates start rising again in the next few months.

Agree with you 100% Rising interest rates + weak economy = increase in bad debt. Bank shares will drop like a stone!

The economy is weak in parts (tourism and related services) but booming in others driven partly by a once in a generation resource boom. Overall business confidence is way higher than before the pandemic.

But the question is, can global interest rates actually rise meaningfully at this point without triggering a systemic collapse of the US-debt based system ?

Yet the dilarious real estate agency executives have been spouting their pseudo-wisdom at how there is no better time to buy that now! (for them to get their typical commission that is)

Presstitutes !! The “boom” was a backlog at the transfer department. There will be at LEAST 300,000 homes going to be repossessed due to the failed ministers usurping their power and shutting down the Tobacco & Liquor industries. As well as, the lock downs and masks THAT DON’T WORK!! I speak to real estate agents and they have been crying for a long time! I have a great idea, BLAME RUSSIA.

U know it’s a proper housing boom when each new house sale in yr area fetches a new record high……. This didn’t happen each house that sold in my area was setting a new record low …

Houses + owners without jobs = bankrupt owners = cheap houses

I wonder how average property size is factored in? In Cape Town it seems every few months you can buy a new apartment in a reasonable location for a lower price – but those apartments have gotten smaller and smaller.
So a few years ago an entry level CBD property was about R1.3M. Now about R900k in converted commercial premises. New studios in Sea Point now about R1.3M – about the same you might have paid 10 years ago.
The return of tourism & AirBNB should eventually bring a bit of support back to the Cape Town market but at the same time there is a big overhang of developments and commercial conversions coming on stream.
Amdec and their backers must have a lot of guts as they bring Harbour Arch to market.

The only boom will be to Amdec – they’re going to be handed their a*** there. Have you been to the site? If you like vagrants and highways and derelict rail yards then by all means go ahead. Yes, in places like London and New York old spaces get cleaned up and of course our own V&A was an urban renewal but those days in Cadrezania are looooooong gone. The KPMG building next door has been vacant for over 2 years (how long can FWJK keep that?)
Another point – AirBnB in CT will come back but more than 50% of prior usage? Doubt it
…. but I’m a buyer in CT at very deep discounts. VERY deep

I am a Real Estate Agent. Let me dispel a few myths.

1) The housing market boom is not a boom. Higher volumes are just backlogged transfers that were halted during lock down.

2) House prices have not risen. People who bought 5 years ago and try to sell now are selling for what they paid. Effectively, showing zero growth in the short term.

3) Despite lower interest rates, Distressed sales figures are exploding.

Thank you for sharing from real experience. In addition to the poor economy, the inverse relationship between interest rates and house prices, will cause further pain down the road, despite those optimists believing everything is rosy locally!

Tremendous and clear summary TDCat.
Not PR drivel from Golding & other smouse talking their book up. You didn’t mention the vast leap in administrative costs such as levies, rates, insurance, electricity, etc (electricity is now about 80% tax due to the massive debt hole there). Toss in some defaulting tenants too for a lovely Covid cocktail

Agreed – don’t know whether to believe the defaulting tenants or the business confidence surveys. The tenants say there is no money and no employment (or they are ‘waiting on supplier payments from SOEs!) and the confidence surveys, the Rand, Liberty’s report on traffic at Sandton City etc. all say we are in the biggest boom in our lifetime!

The FNB market segmentation is questionable. Houses above R3m are upper end …not R1.5m .

End of comments.

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