Rate cuts expected to boost summer sales surge
Category News
The spring-into-summer home sales surge that usually occurs at this time of year is bound to be given additional impetus by this week's interest rate drop, says Berry Everitt, CEO of the Chas Everitt International property group.
The 25 basis point rate cut, which comes on the back of the inflation rate declining sharply to 2,8% in October from 3,8% in September, brings the repo rate to to 7,75% and the prime lending and base home loan rate to 11.25%.
"This will mean lower repayments on all sorts of debt, including car finance, personal loans and credit card balances as well as home loans, and combined with a lower cost of living, will create significant financial relief for most households.
"As far as existing homeowners are concerned, it will reduce the minimum monthly repayment on the average home loan of R1,25m by R215 (or a total of R431 since August) - and lower the risk of bond defaults across the board. This is important because the latest FNB Property Barometer figures show that almost a quarter of those currently selling their homes are doing so because they are in financial difficulty, while the National Credit Regulator predicts that almost 8% of borrowers will be in arrears to some degree during the first quarter of next year."
Even more importantly, though, lower interest rates make it easier for those who want to buy a new home to afford the monthly instalments, and to achieve the minimum income thresholds required for home loan approval, he says
"And we feel sure this will bring about a bumper sales season this summer, especially in popular coastal areas such as Cape Town, the West Coast, the Whale Coast, the Garden Route, but also in Johannesburg, where there is still exceptional value to be had, and many existing owners are now eyeing upgrades before the additional rate cuts anticipated in 2025 push prices up too much."
As it is, Everiit notes, the latest BetterBond Property Brief records an immediate 18% increase in home loan applications following the minimal 25 basis point rate cut in September, indicating that there is substantial pent-up demand in the market due to the high interest rates of the past two years.
"This is further underlined by the fact that house prices in some areas are already starting to move slowly upward. In fact, the BetterBond report shows that the average home price showed a year-on-year gain of 3,3% in October, which put it 39% ahead of the average price achieved in October 2019, just before the Covid-19 pandemic. And the average home price paid by FTBs rose even more, by 4,1% in October compared to the same month of 2023."
The biggest impact of this rate cut and those still to come, he says, will be at the bottom end of the market, where prospective buyers are almost wholly credit- dependent and where increased lending caution on the part of banks has caused the minimum deposit requirements to rise steeply over the past year.
"Potential buyers in this sector will now be able to find more properties within their budget and become homeowners instead of continuing to rent. This will enable more existing owners to move up the property ladder and also create mor e demand for units in new developments, which have been largely absent from the market since 2022 but have begun springing up again in recent months."
In general terms, says Everitt, rate cuts and inflation decreases usually also boost consumer and business confidence, leading to an increase in spending in many different sectors, faster economic growth and a rise in employment, which bodes well for everyone's financial wellbeing in the year to come.
Issued by Chas Everitt International
For more information
Call Berry Everitt on
+27 82 441 3601
Or visit www.chaseveritt.co.za
Author: Chas Everitt