Last week’s interest rate hike wasn’t unexpected, but it does raise the question of whether SA’s mini-housing boom is finally running out of steam. And while there are mixed views on how quickly rate increases will deflate buyer exuberance and house-price growth, it’s probably safe to say that volumes and price growth are unlikely to match last year’s highs.
Rate cuts to near-50-year lows in 2020, coupled with pandemic-induced shifts in how people live and work, caused a spike in housing sales and price growth.
Latest data from the deeds office shows that the value of housing sales breached R80bn in the third quarter last year, up from a R60bn quarterly average recorded through most of 2017-2019.
House price growth, which bottomed out at a lowly 1.3% in April 2020, reached a five-year peak of 5.1% in April 2021, according to FNB’s residential property index. Though price growth slowed somewhat in the second half of the year, 2021 as a whole still clocked up 4.2%, from an average 2.5% in 2020 and ahead of 2019’s 3.5% (see graph).
Another metric that underscores the strength of the housing market is the average time it takes to sell a house. This reached a multiyear low of seven weeks and six days in the fourth quarter, about half the average 14 weeks and one day recorded by FNB in the period following the global financial crisis (since 2009).
The good news is that economists expect further rate increases to be gradual, given the still fragile state of SA’s economic recovery. Most have pencilled in two more 25 basis-point (BP) increases this year — on top of the two 25BP hikes announced since November. That means the current prime rate of 7.5% should remain well below its 10% pre-Covid level for at least the next 12 months.
Every 25BP hike translates into an additional monthly bond payment of about R152 on every R1m owed.
"The more gradually interest rates climb, the less of an effect it will have on the housing market as a whole," says Adrian Goslett, regional director of Re/Max Southern Africa.
However, he notes that every time interest rates climb, home loans become a bit more expensive, which means fewer people will be able to afford the repayments.
"Over time, this could mean smaller buyer pools and downward pressure on asking prices, especially if more homes enter the market owing to affordability issues."
Jawitz Properties CEO Herschel Jawitz agrees that the prospect of further rate increases will inevitably translate into lower demand, especially among rate-sensitive entry-level and first-time buyers. But the impact of last week and November’s rate hikes alone will likely be "marginal", he says.
Recent home loan data seems to support Jawitz’s view. Mortgage originator BetterBond reported a 12.5% year-on-year increase in mortgage applications in December.
"That suggests buyers are still making the most of the favourable lending environment," says BetterBond CEO Carl Coetzee.
And Leadhome Properties CEO Marcél du Toit says the number of buyer inquiries recorded by the online agency in January was the highest in five years.
FNB senior economist Siphamandla Mkhwanazi seems equally bullish. He doesn’t expect a marked drop in sales volumes or price growth this year. His view is primarily based on the changing demographics of home-buyers.
Mkhwanazi says current sales activity is being driven primarily by older buyers who are not as rate sensitive as their younger counterparts.
Referring to FNB’s own mortgage extension data, coupled with deeds office registrations, Mkhwanazi points to a noticeable migration in sales volumes last year away from buyers under 35 (typically a large chunk of first-time buyers) towards middle-aged (35-55 years) and, to a lesser extent, older groups (55+ years).
He says middle-aged buyers generally would have had more time to pay off mortgages, so have more equity in their homes. That means easier access to savings for upfront deposits to upgrade or relocate.
Though further rate hikes may have a cooling effect on overall sales volumes — and price growth eventually — he believes demand from older buyers with stronger balance sheets should continue to support housing activity in 2022.
As such, Mkhwanazi doesn’t expect house prices to deflate any time soon, with average growth of 3%-4% forecast for 2022 as a whole.
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