South Africa’s housing market seems to have peaked

Following 11 months of successive gains, data from FNB’s House Price Index (HPI) shows that annual house price appreciation slowed in May to 4.1% y/y, from 4.6% in April.

The slowing pace of price growth coincides with the slowing of propriety demand indicators, namely the demand strength indicator derived from FNB’s property valuers’ database as well as internal volumes of mortgage applications, the bank said.

“Both indicators declined in the past two months, perhaps suggesting that the interest rate-induced demand may have peaked, following a strong rebound in the second half of 2020 and into 2021.

“However, these remain above pre-pandemic levels, still reflecting the positive effect of lower interest rates on market activity,” FNB said.

Banks still giving loans 

FNB said that lenders appear willing to fund residential property acquisitions, or more generally, asset acquisitions.

Data from the SARB shows that mortgage credit has been rising steadily since the second half of 2020, reaching 5.6% y/y in April, from 4.4% y/y in March.

“Preliminary data also shows that loan-to-price ratios, a proxy for loan-to-value, have continued to rise, suggesting willingness by lenders to finance a bigger proportion of the purchase price.

“Note, however, that the surge in LTPs predates the pandemic  – it began in 2017 – and is largely attributed to intense competition among lenders in a thin volume market,” FNB said.

Unemployment hurts 

While the above factors are broadly supportive of market activity, they are more cyclical in nature, FNB said.

“Structural factors, such as employment growth, remain elusive. The latest labour market data shows that there are still 1.4 million fewer people employed compared to the same period last year, and that employment gains made in 2H20 were somewhat reversed in Q1 2021.”

Company liquidations remain elevated and wage growth is low, it said.

“So far, however, these have been offset by low-interest rates as well as the pandemic-induced changes in housing preferences, i.e. homeownership over renting.

“Positively, we note a potential upside on non-wage income, especially dividend income, which could provide impetus for upper-income households.

“We are also somewhat encouraged by employers’ perceptions about employment outlook, which have become materially less bearish.”

However, this has not filtered through to official employment numbers yet, FNB said.


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South Africa’s housing market seems to have peaked