The consistent decline in the consumer price index is bound to lead to lower interest rates during the rest of the year. The imminent relaxation of monetary policy will likely lift average home prices to new record levels, especially in the metropolitan areas. Several financial institutions and economic research agencies have recently lifted their growth forecasts for 2025, which will positively impact the residential property market.
According to the index provided by BetterBond, the current number of home loan applications is on par with the level achieved five years ago, despite the negative impact of the COVID-19 pandemic and the high interest rates. In their September newsletter, BetterBond confirmed that home loan applications increased 6.5% quarter-on-quarter, and house prices remained positive at 6.4% for all buyers and 7.7% for first-time buyers.
Statistics drawn from the role players in the property industry further confirm:
- A 38% increase in average home prices since the third quarter of 2019 (pre-Covid).
- The consolidation of home loan activity from the beginning of 2024 shows a 3.5% year-on-year increase in the number of home loan applications during July and August 2024 (on average), with an impressive quarter-on-quarter increase of 6.5%.
- A decrease in home prices during July and August 2024 compared to the second quarter of 2024, but the year-on-year movement remained positive at 6.4% for all buyers and 7.7% for first-time buyers, both of which are above inflation.
- The damage inflicted by the high interest rates on the residential property market remains evident in the two lowest home price brackets, namely below R500 000,00 and between R500 000,00 to R1 000 000,00. During the 12 months preceding August 2024, the number of approved home loans in these two categories declined by more than 2% and 7.5%, respectively, reflecting the affordability challenges being faced by lower-income earners.
- The number of home loans for higher-priced homes, in contrast, has continued to increase, with an impressive 15% year-over-year increase for homes valued at more than R3 000 000,00.
- The total number of home loans granted in July and August 2024 was 5% higher than for the same two months last year.
- For the 12 months ending August 2024, the average loan approval ratio stood at 60.8%, which is virtually the same level as it was two years ago.
- The Greater Pretoria region took the lead, with an approval ratio of just below 70%, followed by the Western Cape at 67% and Mpumalanga at 63.9%.
Recently, Dr Roelof Botha of the GOPA Group SA shared his insights regarding the repo rate after looking at the latest economic developments:
- The most important development was the decline in the consumer price index (CPI) to 4.6%, which is just above the mid-point of the Reserve Bank’s target band.
- The CPI has now been comfortably within the target range of 3% to 6% for 14 successive months, signalling the strong likelihood of an interest rate cut in September 2024.
- The producer price index (PPI), a leading indicator of consumer prices, is at an even lower level than the CPI, namely 4.2%.
- The debate is now shifting from whether the repo rate will be cut to the scope of the reduction. A cut of 50 basis points has become a reality, especially against the backdrop of low economic growth, rising unemployment, and households facing the highest ratio of debt costs to disposable income in 15 years (9.2%).
- Underpinning the optimism over sizeable rate cuts over the next 12 months is the sharp decline in South Africa’s 10-year bond yield. Since the end of April 2024, the country’s benchmark long-term interest rate has dropped by almost 200 basis points, which suggests that the Reserve Bank’s Monetary Policy Committee has been caught napping due to the positive long-term correlation between lending rates and bond yields.
Any cut in the repo rate will be exceptionally good news for debt-laden households. From a residential property market perspective, such a cut will create a positive sentiment in the residential property sector and will result in more people purchasing residential properties coupled with more relaxed lending criteria from the financial institutions which will cumulatively push residential property prices upwards.
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