Financial services group FNB expects the housing market to benefit from decreasing inflation and interest rates.
According to Stats SA, headline inflation dropped from 5.1% in June to 4.6% in July, the lowest in three years.
This decline, coupled with an improving rand exchange rate and better global sentiment, has led FNB to revise its inflation outlook downward.
FNB now anticipates two 25-basis-point cuts in the repo rate this year and another in 2025, reducing the repo rate from 8.25% to 7.50% by 2025. This forecast also includes a more optimistic view of GDP growth, with predictions of 1.0% in 2024 and 1.8% in 2025.
These economic improvements are expected to positively impact buying activity and house price growth, with lower inflation and interest rates improving affordability for potential homebuyers.
“Improved economic activity, a more benign inflation environment, and looser monetary policy could improve affordability for potential homebuyers, stimulate demand and support house price growth," said FNB senior economist, Siphamandla Mkhwanazi.
The FNB House Price Index (HPI) showed 0.6% year-over-year growth in August, consistent with July. While mortgage market growth slowed from 2.7% in June to 2.5% in July, indicating subdued demand and stricter lending criteria, FNB believes that once interest rates decline, the market will see a clearer upward trend.
Deeds data shows that while loan-to-price ratios have stabilised, mortgage volumes are still declining.
Rental data
The rental market presents mixed signals. Rental inflation slightly decreased to 3.2% in Q2 from 3.3% in Q1, reflecting weak demand.
“While high interest rates may favour renting over buying, this data suggests that this has not been sufficient to absorb the excess supply, potentially due to a sluggish labour market,” said Mkhwanazi.
“In addition, our 2Q24 Estate Agent Survey results suggest that most households that are selling due to financial pressure would rather downscale than go back into the rental market.”
“On the supply side, the volume of new-build housing stock is declining, mirroring the subdued demand. This downturn is particularly pronounced in the <80 square metre category, primarily representing affordable housing.
FNB’s Q2 2024 Estate Agent Survey reveals that most households selling due to financial pressure prefer downsizing over returning to the rental market.
On the supply side, new housing stock is declining, particularly in the affordable housing sector (<80 square meters), with a 19.2% decrease compared to the same period in 2023.
Overall, while the housing market faces challenges from high interest rates and a weak labour market, the anticipated improvement in inflation and interest rates provides a more hopeful outlook for recovery.
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