Beat the rush back into the market
Category News
Probably the most interesting observation in the latest FNB Property Barometer* is that a "potential bottoming out" of the residential market actually occurred about a year ago - between the second and third quarters of last year.
Granted, buyer activity levels have been erratic since then, sensitive as they always are in SA to interest rates, consumer and business confidence, extreme weather events, the value of the rand and political uncertainties.
However, we at Chas Everitt have been noting a slow but steady uptrend in both enquiries and sales since the last quarter of 2023, which has not been significantly disrupted by either pre-election anxieties or consumer disappointment at interest rate cuts have not materialised as expected this year.
In fact, activity has gained momentum since the formation of the GNU last month, as we predicted it would.
Meanwhile, as FNB also notes, home values are on the rise, albeit at a glacial pace for now. The FNB House Price Index shows a national average yoy increase of 0,5% in June, for example, compared to a yoy increase of 0,3%.
Taken together, these two trends indicate that the market is slowly moving off the bottom already, despite the lack of interest rate movement this year.
At the moment, the market is being strongly supported by existing homeowners, with around 43% of transactions due to those who are downscaling due to life stage - from large family homes to retirement villages, for example - and to those who are downsizing due to financial pressure.
Interestingly, FNB notes that most of the latter are choosing not to rent but just to buy a smaller, less expensive home, and this is supporting the lower end of the market, despite a dramatic fall off in first-time buyer activity since the peaks of 2020 and 2021 when interest rates were slashed in response to the Covid-19 threat to the economy.
It is more difficult for such buyers to afford or obtain home loans when interest rates rise - and especially if they rise as fast as they did in 2022.The banks have also become a lot more cautious in recent months about approving home loans, and especially without a sizeable deposit, which is almost impossible for first-time buyers to save in the face of the high cost of living.
However, if the new government can retain the confidence of investors in the coming months - and we expect it will - the Rand will strengthen, inflation will fall, interest rates will be cut sooner rather than later and there will be a resurgence of new buyers that will give even further impetus to a market that is already recovering.
We would of course welcome a surprise this week, but we are actually not expecting rates to start being lowered until September at the earliest, because the Reserve Bank is still concerned about the upside risks to inflation, and more importantly, because a cautious US Federal Reserve is not expected to make a move on rates until then.
But in the interim, we would once again urge those who are in a position to buy homes or investment properties do so now and avoid the swift price increases that will occur whenever rates do start to fall. This is a pattern we have seen repeated many times in the real estate industry as more potential buyers are enabled to buy, more existing owners and developers are able to sell and supply starts to dry up, and the best returns always go to those who have the foresight and courage to get ahead of the upturn.
Author: Berry Everitt