Subdued economic activity and high interest rates in 2023 have resulted in meagre house price growth in South Africa, while both demand for and supply of property are in negative territory – with young first-time buyers, in particular, being most affected.
This is according to FNB’s latest property barometer for November 2023, which showed that in line with affordability, buying activity continues to decline across the spectrum, with volumes languishing slightly below pre-pandemic levels.
“There are signs of widespread downscaling in the market, supporting volumes in lower-priced brackets. At the same time, younger buyers have become more despondent, reflecting the disproportionate impact of subdued economic activity and high interest rates on younger individuals,” the report said.
The FNB House Price Index growth averaged 0.5% y/y in November, virtually unchanged from October.
“Our market strength indices show both demand and supply in negative territory. We suspect that the supply index largely reflects the decline in the construction of new housing units in response to lower demand,” said FNB.
“It is also possible that the unfavourable selling conditions, characterised by diminished affordability and tighter lending standards, are causing some homeowners to re-evaluate their decisions,” the bank added.
By price, the report noted preliminary data shows that price growth is slowing across all the selected price brackets, except for the R1.25 to R1.5 million, which likely reflects the buying-down effect.
“We [FNB] expect the weak house price growth trajectory to continue for a little while until inflation and borrowing costs ease more meaningfully from 2H24,” it said.
Feedback from estate agents continues to illustrate weakening buying activity, though short-term expectations are now showing signs of optimism.
“Year-to-date (January to September), new mortgage volumes have declined by 27%, according to the latest available Deeds registrar data.
“The decline is more pronounced in higher-priced segments, with the more affordable segments of the market supported by the downscaling trend,” said FNB.
The bank added that volumes in the bottom 20% bucket, with an average purchase price of approximately R500,000, are 24.7% lower compared to the same period last year. Similarly, volumes in the top 20% (average R2.9 million) are also down 27.8%.
The report further highlighted that younger buyers (including first-time buyers) have been more despondent. The share of mortgage volumes attributed to individuals aged below 35 has declined from the most recent peak of 47.3% in 3Q20 to 39.7% in 3Q 2023.
“This reflects the disproportionate impact of subdued economic activity and high interest rates on younger individuals, while stronger balance sheets often insulate older individuals.
“Overall, these trends align with our expectations and reflect higher debt servicing costs, reduced affordability, and tighter lending standards,” the report said.
The bank noted that its projections of slightly lower interest rates and moderately better growth outcomes should help stabilise mortgage volumes next year.
“We expect volumes to decline by around 30% this year and partially recover by 5% in 2024,” it said.