House price growth at low levels but should turn around in the second half of year

Property for Sale in Hout Bay. Photographer: Tracey Adams / Independent Newspapers.

Property for Sale in Hout Bay. Photographer: Tracey Adams / Independent Newspapers.

Published Feb 13, 2024


Average house price growth in January remained unchanged from December, in line with house price growth having bottomed in the fourth quarter of last year.

FNB senior economist, Siphamandla Mkhwanazi, said yesterday that FNB House Price Index growth had averaged 0.6% year-on-year in January, unchanged from December, which was revised from 0.8%.

“A discernible upward trend should start in the second half of 2024, once affordability improves. Market strength indicators suggest both demand and supply of properties for sale are contracting, and by a similar magnitude,” he said in a statement.

Residential property sales and values ticked up between the second half of 2020 and 2022, and demand was expected to have peaked in 2023.

“Available data suggests mortgage volumes have declined by 28%, as affordability pressures kept prospective buyers at bay, and others seeking cheaper properties, as reflected by the compression in average loan sizes,” Mkhwanazi said.

Similarly, data suggested that house price growth may also have reached a trough in the fourth quarter, at a lowest level since the Global Financial Crisis (GFC).

Lower-priced segments outperformed, reflecting the buying-down effect and the supply deficiencies.

However, this shift in buying patterns would likely be less supportive this year, as affordability eased. In addition, the interest rate reprieve would filter through with a longer lag, as some prospective buyers take time to repair credit records.

“As such, we anticipate a marginal decline in annual volumes, and slower price growth in the segment,” said Mkhwanazi.

Some high value segments, particularly along the Western Cape coast, gained support from the semi-gration trend which appeared to be normalising.

“While affordability pressures should ease somewhat, a rapid rebound in activity and house price growth is unlikely this year. We project home buying activity to move sideways in the near term, at levels 10% below pre-pandemic average (between 2015 and 2019), but to pick up steadily over the forecast horizon,” he said.

A gradual decline in inflation and borrowing costs, with employment gains, should modestly stimulate demand, over the medium term.

In the longer term, volumes could stabilise modestly above pre-pandemic levels, supported by improved sentiment; employment and income gains; lower interest rates; faster population growth as well as innovation and widening access to credit markets. We expect volumes to grow 0.8% this year,” he said.

Mkwanazi. expected the FNB House Price Index (HPI) to average 1.4% this year, relatively unchanged from the 1.5% in 2023.

The buying-down effect, combined with stock shortages, helped sustain volumes and property price growth in lower priced segments in 2023.

Middle-priced segment activity would likely benefit from lower inflation and interest rates; continued job gains; and increased competition in credit markets. Price growth should lift moderately from low levels seen in 2023, but would likely remain below inflation.

Structural affordability, as measured by price-to-income ratio, had improved overtime which should help support longer-term housing demand.

In affluent markets, after favourable pricing in 2021 and 2022, a robust recovery in non-labour income, improved balance sheets in the aftermath of the pandemic, and the rise of remote work, buying activity declined sharply in 2023, weighing on property values.

The semigration trend was normalising, providing less support to high-end property demand in coastal towns. On the positive side, sales related to emigration had slowed, and anecdotal evidence suggested an increase, albeit from very low levels, in South African expats buying local property in higher-priced segments.