Property Brief - it's tough out there, but with glimmers of hope

Editor

The September BetterBond Property Brief is here with the latest on average home prices, changes per region, and macroeconomic insight by Dr Roelof Botha.  Short-term house prices and home loan prices indicate that people are feeling the effects of the higher repo rate; there are, however, glimmers of hope for 2024.

Average home purchase price

Following solid growth in average home purchase prices in 2019 and 2020 (despite the Covid-19 pandemic), the growth trajectory started to flatten slightly, especially for first-time buyers. In November 2021, the Reserve Bank started raising interest rates, and since then, home purchase price increases have been even more muted.

Owing to the residential property market's resilience, we witnessed record average home purchase prices in Q2 2023 for all buyers and first-time buyers.

With interest rates at 15-year highs, however, something had to give, and a modest drop in average home purchase prices therefore occurred over the past two months. Compared to the same period last year, average home purchase prices are virtually unchanged, however, so any lowering of interest rates could spark the expansion of this market.

% share of formal home loan grants per price bracket

In the 12 months to August 2023, the share of formal home loans granted in the three lowest price brackets (below R1.5 million) continued to account for most residential property market activity, securing almost two-thirds of formal home loan grants.

A marginal increase was recorded for formal home loan grants in the R2 million to R2.5 million price bracket.

The R500,000 to R1 million bracket comfortably outperformed all its counterparts, recording a 37% share of formal home loan grants.

% change in average home price by region

Over the past year, one of the outstanding features of the residential property market has been the variance in average home prices between different regions in our country.

When comparing the 12 months ending August 2022 with the 12 months ending August 2023, the percentage spread amounts to 1,600 basis points. This shows South African consumers' stress in the face of higher inflation and higher interest rates.

Two regions have absorbed significant semigration from the rest of the country - the Western Cape and Eastern Cape - experiencing notable increases in average home prices.

The Eastern Cape recorded the second-highest increase year on year but did so from a relatively low base. The Western Cape performance has been remarkable - showing the most significant increase. Its average home price is also 35% higher than the national average.

The CPI has now declined to well within the Reserve Bank target range of 3% to 6%, which means there is no reason for the Reserve Bank to continue its hawkish monetary policy.

Inflation declines further

From a property market perspective, there was more good news in the shape of a further decline in the Consumer Price Index (CPI) and a further sharp drop in the Producer Price Index (PPI), a leading indicator of consumer inflation.

Given the current state of the economy, it is imperative to start fostering higher growth now via a lowering of interest rates. Hopefully, this month's meeting of the Monetary Policy Committee will mark the beginning of a more accommodating policy stance, something indebted households, in general, and the residential property market, in particular, need desperately.

Positive GDP growth in Q2

Higher economic growth is on the cards with the continued rise in formal sector employment during Q2 2023.

Statistics SA reports that the economy expanded by 5.2% in nominal terms between April and June compared to Q1 2023.

Adjusting this figure by the average producer and consumer inflation yields an impressive real GDP growth rate of 4.7%.

Key growth drivers that have come to the fore during Q2 2023 are:

• Record harvests of essential agricultural products, which also feed into food processing industries
• Growth in exports of manufactured goods
• All-time record imports of machinery and equipment

The increased imports of machinery and equipment are associated with the exponential growth in renewable energy installations, with rooftop solar photovoltaic (PV) capacity in South Africa having quadrupled in the past year from just over 1,000MW to 4,400MW.