Housing market still showing strong growth, for now

South Africa’s property market is showing signs of cooling but remains one of the hottest sectors in town, according to data published on 19 January in the latest FNB Property Barometer, which showed that house prices rose 3.4% in the year to December. House price growth averaged 4.2% in 2021 compared with 2.5% in 2020.

But a more insightful comparison is with 2019, the last full year of the pre-pandemic era in South Africa.

“Deeds data, supported by internal applications volumes, shows that mortgage approvals in the first nine months of 2021 were approximately 34% higher compared with the same period in 2019,” FNB said.

“The resurgence in market volumes was more pronounced in the affordable segments (up to R750,000) following a more severe decline in 2020 due to the harsher impact of the pandemic on lower-income households.”

The lower end of the market was experiencing faster growth compared with other price segments before the pandemic, so the trend has resumed, helped along by low interest rates after the South African Reserve Bank (SARB) slashed them by 300 basis points in 2020.

But that party has come to an end after SARB’s Monetary Policy Committee raised rates by 25 basis points at its last meeting in 2021 and it is expected to keep tightening them in 2022 to contain inflation, which was running at 5.9% in December.

That could cool things at the lower end of the market, but FNB said there is now a shift in volumes up the price ladder, which will be less sensitive to rising interest rates.

“The slow recovery in the labour market, combined with rising interest rates, suggests a less supportive medium-term environment for home-buying activity. However, if sustained, the ongoing shifts in housing needs, which have lent support to homeownership, could mitigate the impact,” FNB noted.