Last year’s unexpected mini-boom in housing activity on the back of near 50-year low interest rates and a pandemic-induced shift in buying patterns seems to have continued into 2021.
However, a glut of sales stock is developing in a number of areas as more financially stretched homeowners are forced to sell.
The upshot is that house prices are likely to come under pressure later this year. In fact, FNB economist Siphamandla Mkhwanazi expects them to drop by an average 2.2% towards the year end. If that happens, it will be the first nominal price decline recorded by FNB since 2008/2009, following the global financial crisis.
The continued strength of the market into 2021 has nevertheless surprised on the upside.
FNB’s house price index recorded a better than expected 4.2% year-on-year increase in February. That’s the highest growth achieved since October 2018.
Still strong price growth has been supported by robust mortgage lending approvals, which Mkhwanazi points out reached the highest levels in more than a decade in 2020.
But he doesn’t expect the good times to roll for much longer, as job losses and the deteriorating state of household balance sheets are bound to start filtering through to the residential property market. He says house-price strength since mid-2020 has been driven by strong demand from mostly middle-income buyers, buoyed by record low interest rates as well as a shift to larger homes to facilitate the remote working trend.
Sales volumes were also supported partly by tenants switching from renting to owning.
But, as Mkhwanazi, puts it, "it is unlikely that there’s much of this demand left in the tank".
He refers to the latest Stats SA data that shows that 66,000 professionals lost their jobs in the fourth quarter, bringing last year’s overall job losses to about 1-million.
"That does not augur well for continued mortgage demand," he says.
However, mortgage originators have yet to see a slowdown in demand for home loans. BetterBond CEO Carl Coetzee says applications processed by the company in the year to March 11 are up about 35% compared with the same period last year, just before Covid-related trading restrictions were imposed.
Coetzee believes continued demand comes mostly on the back of last year’s three percentage point cuts in interest rates, which effectively means buyers can afford to borrow 30% more than they could in January 2020.
Coetzee says first-time buyers accounted for at least 70% of all BetterBond’s applications over the past six months — a year-on-year increase in this segment of close to 17%.
Real estate agents confirm most sales so far this year are happening in the lower-and middle-price brackets, typically R1m-R3m.
Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, confirms that the housing market is still active, but says it has nevertheless become increasingly location and price driven. She says properties priced below R2.6m are moving the fastest.
In addition, coastal areas are now more buoyant than inland areas, with a noticeable slowdown in Joburg in particular.
For the 12 months to the end of January, the group’s overall sales are up 18% (in terms of volumes), while turnover has increased by 12% over the same time.
Geffen says it’s hard to predict where sales volumes and prices are heading, given the threat of a third wave of Covid infections and rising unemployment, among other things.
Leadhome CEO Marcél du Toit holds a similar view, saying buyer interest is now at a three-year high.
Inquiries on Leadhome’s online platform were up 5% year on year in the first two months. However, its seller success index, which measures the probability of a homeowner selling their house within nine months, has dropped to a three-year low.
Du Toit ascribes this to an increase in sales stock coming to the market in recent months due to more financially stressed homeowners being forced to sell. "While there is no shortage of buyers, there is an oversupply of stock, and sellers who wish to sell quickly will need to price their properties accordingly," he says.
Seeff Property Group chair Samuel Seeff also reports continued sales activity in the price bands up to R3m.
"Well-priced properties up to R1.8m can sell within one to four weeks. The higher up the price band you go, the longer properties stay on the market," he says.
Seeff concedes that job losses, coupled with lingering uncertainty about Covid’s impact on SA’s economy, could have a dampening effect on housing activity over the coming months.
He nevertheless maintains that "unbelievably low" interest rates make it one of the best times ever to buy property, particularly at the R20m-plus end, where price growth has been flat since 2017 and plenty of bargains can be had.
Seeff cites low confidence as the key reason for depressed prices at the top end. He says wealthy buyers are concerned about SA’s economic and political future.
As a result, "they are voting with their wallets. Those who would have bought for R50m before are now buying for R20m and moving the rest of their money offshore."
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