Interest rate hikes turn off property buyers
Fewer people are buying homes following the recent interest rate hikes.
Average house prices are stagnating and home loan values are decreasing, statistical reports reveal.
One thing that has increased, however, is buying activity in the higher price segments of the market.
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Buying activity
For eight of the nine months recorded for this year thus far, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says the agency’s total reported sales values year for the year-to-date are up about 6% from last year and registration values about 4% for the same period. The number of properties sold though has decreased by about 4%.
In June, July, and August, the number of properties sold increased year-on-year, but then dropped in September. This, he says, seems to align with greater market trends following the two steep 0.75% interest rate hikes in July and September.
Citing FNB data, Kobus Lamprecht of Rode & Associates, states in the Q3 Rode Report that, on a scale of one to 10, estate agents rate activity in the property market to be a six. This is a decrease from 7.1 in the fourth quarter of 2020. The 2020 peak was “of course created by the significant cuts in interest rates”.
“Much has changed since then, with the prime interest rate rising or ‘normalising’ to 9.75%, roughly the same level it was before the pandemic... This suggests that demand has also normalised.”
Using Lightstone Property data, Goslett says that, as at October 4, the number of property transfers – both bonded and unbonded, recorded at the Deeds Office for the period July to September 2022 amounted to 60 700. When reviewed against the figures from previous reports, this amount is down by 22% on last quarter and up by 1% year-on-year.
“The same data also reflects that a total of 42 784 bond registrations were recorded at the Deeds Office over the period July to September 2022. The RE/MAX National Housing Reports reveal that this figure is down by 3% on Q3 2021’s figures.
“Of the 60 700 transfers, a total of 29 503 freehold properties and 16 536 sectional title units were sold countrywide. These figures exclude estates, farms, and land only transfers. Reviewed against previous reports, the number of freehold properties registered dropped by 21% compared to the results of last quarter and stagnated at 0% year-on-year. Sectional titles, however, increased by 10% year-on-year and dropped by 20% quarter-on-quarter.”
Activity in the higher price brackets, however, has increased. He says the number of transfers above R800 000 grew proportionally more than transfers priced below R800 000. Transfers over R3 million grew from 7.2% of all transfers in Q2 to 8.1% of all transfers in Q3 2022. Similarly, transactions between R1.5m to R3m grew from 19.5% of all transfers in Q2 to 20.5% of all transfers in Q3.
The RE/MAX report also states that transactions between R800 000 and R1.5 million grew from 26.2% in Q2 to 27.5% in Q3, but those between R400 000 to R800 000 dropped from 23% to 21.8%. Transactions below R400 000 dropped from 24.2% to 22.2% during this same period.
Lamprecht adds that an indicator that shows the residential market is still holding up relatively well is the time that houses are on the market, which in Q3 of 2022 was about 10 weeks. It was, however, a slow increase from the roughly eight weeks that has been seen since the end of 2021.
“This is still below the long‐term average of 13 weeks. One would expect a moderate inverse correlation between ‘time on the market’ and ‘activity’.”
House values stagnate
Lightstone Property reported in September 2022 that national year-on-year house price inflation is at 3.23%, having decreased consistently since early 2021, Goslett says, adding that this data shows the nationwide average price of sectional titles to be R1 054 357.
“When reviewed against the figures from previous RE/MAX National Housing Reports, this amount reflects 0% growth for the same period last year and last quarter.
“Based on the same data, the nationwide average price of freehold homes is R1 436 555. When reviewed against the figures from previous RE/MAX reports, this amount increased by 6% year-on-year, and by just 1% compared to last quarter.”
Also using Lightstone data, Lamprecht says house price growth slowed in all segments over the past year or so.
“The Lightstone data reveals an interesting trend, namely that houses worth less than R250 000 (low‐value band) have comfortably managed to outpace inflation over the past few years, implying real price growth. The latest year‐on‐year growth rate in September 2022 was a stellar 8.1%, above the consumer inflation rate. We suspect the amazing outperformance of this low‐value band since 2016 could possibly be ascribed to subsidised houses being sold into the market at market‐related prices.”
He adds that low‐priced properties are on the market for 13 weeks based on FNB data for the third quarter of 2022, well above the national average of 10 weeks, which could mean price growth could come under more pressure.
“Also note that growth in all the other price bands slowed to between 2% and 4% in September 2022 from its peak of about 6% in the middle of 2021. Price growth in the ‘mid’ segment slowed to 3.7% year on year in September 2022 from about 6.5% in the second quarter of 2021. This suggests that higher interest rates and perhaps also higher inflation are starting to have a dampening impact on demand from first‐time buyers.
“Indeed, first‐time buyers made up 30% of buyers in the third quarter of 2022, down from the pandemic peak of 34%, according to FNB data. But this percentage is still above normal as the long‐term average since 2004 has been 23%.
“We believe this is due to banks reducing their deposit requirements for this segment, and even extending the duration of the bond.”
The Rode Report states that the more expensive properties – high and luxury value bands – performed better in 2021 compared to 2020, but have also slowed so far in 2022.
“We expect these segments to come under pressure as buyers in these categories feel the impact of the downturn in equity markets coupled with rising inflation and interest rates. But then again this applies to the whole market,” Lamprecht says.
Home loan values decrease
BetterBond reports that on average, the loan amount granted to repeat buyers dropped by 1.6% compared to last quarter. For first time buyers, the average bond amount dropped by 2.5% when compared to the previous quarter, Goslett says.
In the medium term, Rode & Associates expects the growth in the value of mortgages granted to be slow as effective demand from borrowers will be impeded by several factors. These include:
- A moribund economy
- The SA fiscal cliff, which will be a constraint on economic growth for many years to come.
- The financial pressure experienced by the consumer, related to higher inflation and rising interest rates
- Very high unemployment
- Rising utility costs that erode disposable incomes and the competitiveness of the SA industry
Lamprecht adds: “Property buyers will generally shy away from cities and towns with dysfunctional municipalities, characterised by high debt levels and a collapse in service delivery.”
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