House price growth fell in December due to softer demand, higher living costs and deteriorating affordability, the latest FNB House Price Index showed.
Annual growth in the FNB House Price Index moved slightly lower to 2.7% year-on-year in January, from 2.9% in December., with the decline spread across price segments and major cities.
“We anticipate house price growth of around 2% this year, versus 3.5% and 4.2% in 2022 and 2021, respectively. Price growth should start lifting in the second half of 2024, as interest rate pressures ease and marginal buyers return to the market,” FNB economists Siphamandla Mkhwanazi and Koketso Mano said at the release of the index.
They said they expected home buying activity to decrease further in coming months as affordability becomes more stretched.
Their view is in line with other property commentators. For instance Adrian Goslett, CEO of estate agency group REMAX said recently “in my opinion, it is likely buyer demand will drop as a result of the tougher economic conditions we are likely to experience in 2023. The number of property sales (units) is likely to drop by around 10%.”
FNB’s economists said yesterday: “The steep interest rate hiking cycle and elevated inflation have eroded affordability, making it difficult for buyers to save for a down payment. Anecdotal evidence suggests some first-time buyers have turned to unsecured lending to fund their upfront deposit,” they said,
They said there had also been an increase in reliance on government subsidy programs such as the Finance Linked Individual Subsidy Program (FLISP), to help these buyers enter the market.
Internal mortgage applications data revealed the rising popularity of home loans with lengthier payment periods of longer than 20 years, mostly among lower income earners.
Some positive factors for the house buying market were factors such as changes in consumer preferences due to the pandemic, structurally improved affordability, credit availability and a higher household formation rate, FNB said.
In addition, debt-to-income and debt-servicing ratios were low by historical standards, and lenders would likely offer more affordable options to attract customers, countering the effects of higher borrowing costs.
“Non-labour income is also expected to remain relatively supportive of activity in higher-income market segments,” the economists said.
In the affordable market, where a decline in volumes and price growth was anticipated as households face financial strain, a persistent shortage of housing and strong desire for home ownership would partially offset these factors.
In the middle priced segments, a decrease in buying activity was anticipated, but stable interest rates and increased competition in credit markets should help. Modest household savings may also provide some relief against rising living expenses.
In the affluent housing market, lower buying was anticipated in 2023 following good pricing trends in 2021 and 2022, in part due to a decline in buyer confidence. Supply-side factors may mitigate the impact on price growth. Sales related to emigration had slowed. Construction of new housing units should continue to decline.
Rental inflation was expected to crawl higher to 2.6% on average in 2023, from 2.2% in 2022 and 0.9% in 2021.
“Overall, rental inflation remains much lower than headline inflation, reflecting relative slack in the market, with demand still recovering from the pandemic. Vacancy rates have dropped from a peak of 13.3% at the height of the pandemic, to 8.3% in fourth quarter of 2022,” data from Rode and Associates showed.
Goslett predicted that house prices were likely to grow only by roughly 4% nationally this year.
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