South African house price growth falling

In May, the annual house price growth fell to 4.1% year-on-year (y/y) from 4.6% in April, following 11 months of successive gains.

Siphamandla Mkhwanazi

According to the FNB Property Barometer June 2021, month-on-month, the FNB House Price Index (HPI) recorded a price growth of only 0.1%.

The slowing pace of house price growth coincides with the declining demand strength indicator and internal volumes of mortgage applications. “These indicators are derived from the bank’s property valuers’ database,” says Siphamandla Mkhwanazi, FNB senior economist.

“In the past two months, these two indicators contracted. This suggests that the interest rate-induced demand may have peaked, following a strong rebound in the second half of 2020 and into 2021,” says Mkhwanazi.

However, these indicators remain above pre-pandemic levels, still reflecting the positive effect of lower interest rates on market activity.

Encouragingly, properties now sit on the market for 8.2 weeks before they sell, compared to 9.4 weeks in February 2021.

Read also: Selling due to financial pressure on the rise

In January, the FNB HPI reached 3.5% y/y, with FNB saying that the annual house price growth pace was decelerating. Monthly price growth has been falling consistently over the past months, and registered 0.01% in December 2020 from 0.11% in November.

At the time, Mkhwanazi said that the average house price growth was 2.1% in 2020, down from 3.5% in 2019. “We expect house prices to decline by around 2.2% this year.”

According to FNB, mortgage extension continues to grow faster and loan-to-price (LTP) ratios remain high. Credit funding is mainly for properties priced between R1.5m and R2.6m.

FNB says lenders are still willing to fund residential property acquisitions. Data from the South African Reserve Bank shows that mortgage credit has been rising steadily since H2 2020, reaching 5.6% y/y in April, from 4.4% y/y in March.

Buyers in the upper price segments have benefitted most from this lending. However, the bottom 20%, where the average purchase price is R420,000, has seen a decline in LTPs.

“Despite slowing annual house price growth and falling LTPs in the lower end of the market, the credit market remained liquid throughout the pandemic,” adds Mkhwanazi.

Edited by Gudrun Kaiser

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