House price growth, especially outside of the Western Cape, has largely been dismal over the last two years. After growing at rates of between 5% and 9% in the 2020-2022 period, it declined to as low as 0.5% by mid-2024, notes Samuel Seeff, chairman of the Seeff Property Group.
He said that interest rates have had a major impact on the property market, and on house prices. Interest rates also impact the ability of people to afford their own homes and are an important measure of the health of the housing market, and the broader economy.
When interest rates are high and incomes remain stagnant, buying property becomes increasingly difficult. This dampens demand, resulting in less competition for properties, which helps keep prices lower.
Conversely, if the interest rate comes down and incomes grow, then property becomes more affordable, it becomes easier to obtain home loans, and more people can buy property.
Competition for properties on the market increases, and buyers are then inclined to offer higher prices, resulting in higher price growth.
Seeff said this is well demonstrated when looking at house price trends since March 2020 with the onset of the Covid pandemic. In March 2020, the interest rate was at 9.75%. The Reserve Bank then introduced a series of rate cuts between March and July bringing the prime rate down to 7%.
This immediately made properties more affordable, bringing down the monthly repayment on a R1 million home loan over 20-years to R7,753 per month. The consequent increase in demand resulted in national house price growth for the 2020-year of 4.10%.
The subsequent incremental increases in the interest rate from late 2021 then brought the prime rate to 11.25% by May 2023. This resulted in the monthly repayment on this R1 million home loan increasing to R10,493 per month, thus an additional R2,740 per month.
Property affordability declined, and with that the demand for property in the market. National house price growth consequently declined to just 0.7% for the 2023-year, according to the StatsSA House Price Index.
While further interest rate cuts since late last year has brought the prime rate down to 11%, the repayment on the R1 million home loan has only come down to R10,322, thus resulting in a saving of R171 per month.
National house price growth remained flat at about 0.8 for the 2024-year, according to FNB data.
While there has been an increase in activity in the property market, and confidence in the market has soared to the highest levels in a decade according to an ABSA survey, data from FNB shows that house prices have only increased by 1.1% in January. “Clearly more rate cuts are needed,” said Seeff.
Seeff says there is ample reason for the Reserve Bank to provide further interest rate relief to consumers, the economy and property market next week. The interest rate is still well above what it was in early 2020, i.e. before Covid, yet inflation is at around 3.2%, near the bottom of the Reserve Bank’s target range of 3%-6%.
A lower interest rate will provide a vital boost to the economy and housing affordability, drive higher demand, and consequently boost house price growth, he said.
Strong house price growth is vital to encourage further investment, and development growth. “A healthy housing market with strong growth delivers a multiple of economic benefits, including boosting economic and jobs growth as well as government revenue in the form of taxes.”
