House price growth remained stagnant in January, signaling that the bottoming out of price growth observed in the fourth quarter of 2023 may persist.
However, there is optimism for a potential upward trend in the latter half of 2024.
The latest FNB House Price Index showed no change in growth, averaging 0.6% year-on-year in January 2024, consistent with December 2023 figures.
The financial services group noted that this sideways movement aligns with its view that price growth bottomed out in Q4 2023, but it also hints at the possibility of a noticeable upward trend in the latter part of this year as affordability improves.
Indicators of market strength suggest a contraction in both demand and supply of properties for sale, following a period of above-trend transaction activity from 2020 to 2022.
Demand for residential property is believed to have reached its lowest point in 2023, with mortgage volumes declining by 28% due to affordability constraints, deterring potential buyers and prompting a search for more affordable options.
Despite the overall stagnation, lower-priced segments have shown resilience, driven by the buying-down effect and persistent supply shortages.
In contrast, certain high-value segments, particularly in regions along the Western Cape coast, have benefited from the normalisation of the semigration trend.
FNB senior economist Siphamandla Mkhwanazi cautioned that while affordability pressures may ease somewhat, a rapid rebound in activity and house price growth is unlikely this year.
FNB projects home buying activity to remain subdued in the near term, although it is expected to gradually increase over the forecast horizon, supported by declining inflation and borrowing costs, as well as employment gains.
Real estate agents meanwhile, have adjusted their short-term expectations downward, with only 31% of respondents anticipating an increase in activity for the first quarter of 2024, down from 50% in the third quarter of 2023.
The prevailing despondency primarily stems from agents specialising in the affordable housing market. While seasonal factors play a role, concerns regarding affordability, the rising cost of living, and uncertainty surrounding job security were identified as primary factors contributing to this sentiment.
Notably, 53% of surveyed agents expressed that income levels significantly lag behind house prices, a notable increase from 43% in the previous survey period and only 30% at the onset of the interest rate tightening cycle in the fourth quarter of 2022.
Time on the market
The average time that properties are on the market for sale was largely unchanged, at 11 weeks and four days (81 days), marginally shorter than 82 days in 3Q23.
According to agents, 63% of listed properties take three months or longer to sell, slightly lower than the 67% estimated in 3Q23.
Taken as a whole, these market developments somewhat lifted agents’ mood in 4Q23. The proportion of estate agents who are satisfied with current market conditions increased marginally from 46% in 3Q23 to 49% in 4Q23, still reflective of broadly weak market enthusiasm.
Financial pressure-induced sales remained elevated at 25% of total volumes in 4Q23, still higher than the historical average of 18% since 4Q07.
As expected, these are disproportionately higher in the affordable market segment, where a third of volume sales are thought to be financial pressure related, FNB said.
This is consistent with the sharp increase in living and debt servicing costs, which should have a more pronounced impact on lower-income households, it said.
Sales attributed to relocation within SA (semigration) have continued to normalise, estimated at 11% of volume sales, from 12% previously and a peak of 14% in 3Q22.
Looking ahead, FNB anticipates a return to normal volumes by 2025, with modest growth forecasted in the longer term driven by improved sentiment, employment, income gains, lower interest rates, population growth, and enhanced access to credit markets.
FNB expects the House Price Index to average 1.4% in 2024, similar to 2023, before rising to 3.0% in 2025 as the impact of lower inflation and borrowing costs gradually materialises.
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