The continued buoyancy of the residential property market has caught even the most bullish market commentators off-guard.
The latest housing data suggests that last year’s mini-boom has gained further momentum in recent months. That’s in stark contrast to the general expectation earlier this year that the market was headed for a marked slowdown on the back of mounting job losses and pressure on household finances.
In addition, economists expected that the newfound buyer exuberance after last year’s aggressive interest rate cuts to near 50-year lows would wear off sooner rather than later. But that has not happened yet. In fact, the number of property transfers registered in the deeds office in the first quarter is up a hefty 46% year on year, according to a RE/MAX index of housing transactions across SA.
"These numbers are staggering, especially when one takes into consideration that the first quarter in 2020 was pre-pandemic," says RE/MAX Southern Africa regional director Adrian Goslett.
FNB’s most recent quarterly property barometer paints a similarly upbeat picture. In fact, there now appears to be a shortage of housing stock for sale, especially in the R1m-R3m category.
The upshot of all this is that house price growth hit a new multiyear high of 4.5% in March. That’s the highest growth recorded by the barometer since March 2017 and nowhere near the bank’s prediction in late 2020 that average prices would fall by more than 6% this year.
FNB senior economist Siphamandla Mkhwanazi ascribes the home-buying market’s unexpected resilience to low interest rates and pandemic-induced changes in buying patterns — most notably a trend towards larger homes to facilitate remote working.
Demand has also partly been driven by tenants switching from renting to owning, he says.
FNB’s data shows that demand for houses has outstripped supply for the first time since 2013-2015. Back then the stock shortage wasn’t necessarily seen across SA but was more a function of a strong Cape Town market, says Mkhwanazi. He adds that the only other notable period when housing demand grew faster than supply was in 2002-2004.
The time it takes to sell the average house has dropped to eight weeks and two days in the first quarter, from 14 weeks and one day in mid-2020 and 16 weeks in 2018.
Though the improvement is across the price spectrum, properties priced below R2.6m are selling fastest — in less than seven weeks. Houses above R3.6m are taking just more than 11 weeks to offload.
Lightstone analytics director Paul-Roux de Kock says that last year few economic commentators could have predicted the extent to which the housing market would defy Covid-induced adversity. Lightstone, for one, expected house prices to fall by as much as 14.5% (in its worst-case scenario) in 2020. Instead, the group’s index eventually ended 2020 about 3% higher year on year. "Predicting house prices during normal times can be tricky, but a black swan event, which led to the largest annual decline in economic growth on record, makes looking ahead even more difficult," he says.
Lightstone expects house prices to remain in positive growth territory this year — though in a rather conservative range of between 2.1% (worst-case scenario) and 5.2% (best-case scenario) for 2021 as a whole.
De Kock bases his most optimistic forecast on the expectation that lockdown-induced changes in the way many people think about homeownership and mobility will continue to support demand for residential property, particularly among higher-income buyers who can afford to upgrade to larger and more luxurious homes.
However, both Mkhwanazi and De Kock believe there’s a good chance the effect of widespread job losses and negative economic growth will dampen buyer confidence later this year.
Mkhwanazi says: "The housing market has been unusually slow to adjust to evidently weak consumer fundamentals. It’s unlikely that there’s much left in the tank. Stats SA data shows that 66,000 professionals lost their jobs in the fourth quarter, which does not augur well for mortgage demand."
He also expects more buy-to-let properties to be up for sale, given a growing oversupply of rental property. "These factors will have a dampening effect on activity and, eventually, price growth in the coming months," says Mkhwanazi.
De Kock adds: "The full impact of some of the bad news is still to be felt." Apart from widespread job losses, he refers to a significant reduction in new investment (gross fixed capital formation) and rising government debt levels, which he believes will require higher taxes, as suggested in the recent budget. That could slow house price inflation to 2.1% in the second half of 2021.
"This scenario anticipates the number of transactions decreasing as the pent-up demand works its way out of the market."
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