It seems that last year’s aggressive interest rate cuts to near 50-year lows, coupled with pandemic-induced changes in how people live and work, continue to provide support for the housing market — to the surprise of even the most optimistic market commentators.
Earlier this year the general view was that homebuyer exuberance would wane significantly in 2021 as the reality of SA’s high unemployment rate and weak economy starts to set in. However, housing sales volumes and price growth, which have accelerated sharply since mid-2020, remain comfortably ahead of pre-Covid levels.
Latest data released by mortgage originator ooba shows average house prices accelerated by a hefty 16.3% in the second quarter year on year. That’s the highest growth recorded by the company in many years, and brings the average purchase price of an SA house to a record high of just over R1.4m.
Granted, ooba’s figures are based on its own mortgage book and do not reflect every new property transaction recorded in the deeds office. But ooba claims to have a 25% share of all new home loans approved in SA, so it’s safe to assume its numbers are fairly representative of the broader trend.
Rhys Dyer, CEO of ooba, ascribes the continued strength in housing activity to lower interest rates. These have allowed more South Africans to "buy up".
He says the work-from-home trend looks set to stay, so there is a move towards larger and better-equipped homes.
First-time buyers also continue to enter the market because of the perception that owning has become cheaper than renting. Dyer points out that monthly repayments on an R1m home loan have dropped by 24% as a result of the 300 basis point cuts in interest rates last year.
Rival mortgage originator BetterBond has reported an almost 35% increase in home loan applications for the 12 months to July. That’s significant, given that application volumes received by the company were already up about 60% in May/June 2020.
BetterBond CEO Carl Coetzee says that while most of the action last year was in the more affordable price bands below R2m, middle- and upper-income buyers are now joining the party.
“In the year to date we have seen a 38% increase in approved bonds for homes priced between R2.5m and R3m, and a 43% increase in property purchases exceeding R3m,” says Coetzee.
He believes the Reserve Bank’s decisions so far this year to hold the repo rate steady at 3.5% have encouraged aspirant buyers and those looking to upgrade to take the plunge. "That has sent a strong message that there is still time to buy."
Mortgage originators’ reports of a sharp uptick in mortgage demand since mid-2020 are corroborated by credit bureau TPN. According to its latest property transfer data, the number of new mortgages reached 53,899 in the fourth quarter last year, the highest since the fourth quarter of 2008, at the tail end of the previous housing boom.
Though the number of home loan transfers slowed to 45,666 in the first quarter, it’s still ahead of the 42,281 recorded in the fourth quarter of 2019.
Data analytics group Lightstone, which tracks only repeat sales as recorded in the deeds office, has also seen a continued acceleration in house prices, albeit at a much slower pace than that reported by ooba.
The group’s repeat house price index clocked up growth of 4.9% in May year on year, the highest price growth recorded by Lightstone in five years.
The question is: how long is this mini-boom likely to last?
Coetzee expects the upward cycle to last for at least the next 12 to 24 months. He says that even if interest rates are hiked again, as expected from later this year, increases will probably be marginal, with the prime rate likely to remain below 10%. It should encourage buyers across all price bands to make the most of historically low rates.
FNB senior economists Siphamandla Mkhwanazi is less bullish. The bank’s house price index slowed slightly to 3.7% in June, year on year, down from 4.2%, and he expects it to show a further moderation over the next six months.
He says mortgage approvals and property prices have been "unusually slow" to adjust to evidently weak consumer fundamentals, but that overall demand may well have peaked.
"The middle end of the housing market has been buoyed by low interest rates as well as demand for bigger spaces to facilitate remote working.
"However, it is unlikely that there is much of this demand left in the tank. As pressure in the rental market persists, we expect more stock to be released for sale, which could have a dampening effect on price growth in the coming months."
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