Interest rates may be rising, but they are still below pre-Covid levels. Gareth Bailey unpacks the figures and looks at the trends.
With the inflation outlook deteriorating since the previous Monetary Policy Committee meeting – with the headline inflation rate again breaching the upper limit of the 4-6% target for the second consecutive month at 7,4% in June 2022 – it was inevitable that a decision would be taken to further increase the repo
rate (75bps).
However, it is relevant to bear in mind that although interest rates may be rising as the bank normalises monetary policy, they still remain below pre-Covid levels (of 10%) and as a consequence are still attractive for homebuyers.
Significantly, banks are retaining their appetite for extending mortgages to homebuyers, which is providing a solid underpinning for the local housing market. This is reflected in the latest ooba data, which shows that mortgages as a percentage of purchase price have risen to a level of 93% in recent months (six-month moving average), which is the highest level in well over a decade. Furthermore, banks are pricing those loans at an attractive 0,3% relative to prime rate on average – a level last seen in mid-2010.
As a result, activity in the SA housing market remains buoyant – with properties sold during the first half of 2022 almost matching the number of transactions recorded during the first half of 2020, and remaining comfortably higher than during the first half of 2019 prior to the pandemic.
Likewise, house price inflation remains similarly buoyant. Despite a slowdown in house price inflation from a high of 6,04% in mid-2021, house price inflation has averaged 4,65% during the first half of this year. While lower than the 5,76% registered last year, this year’s average increase in house prices is the highest recorded since 2016 (excluding the post-pandemic boom).
What is clear is that residential property is increasingly being seen by South Africans across all walks of life – and in particular the younger generation – as a sound investment class. Encouragingly, the demand for investment (or buy-to-let) properties continues to rise, increasing to 7,8% of total loans in June 2022, according to ooba, which is the highest level recorded since May 2010.
Price growth has now peaked in all major regional markets, with the Western Cape remaining strongest at +6,3% in June, followed by KwaZulu-Natal (+5,4%) and Gauteng (+3,6%). The fact that the sub-R1-million price band continues to outperform other price categories is indicative of the high demand in this lower end of the market, while price growth appears to be stabilising in the R1-million to R3-million band.
Coupled with this, 100% bond applications have quickly returned to – and remain at – pre-Covid levels of around 60% of applications (ooba), while the approval rate eased to 80,7% in June, not far off the pre-Covid record high of nearly 85% in February 2020. Meanwhile, first-time home buyer approvals for 100% loans stand at 80%, with prices paid by first-time buyers currently averaging at R1,14-million (ooba).
Another interesting trend (Lightstone data) is the continued acceleration in coastal house prices, with the price premium compared with non-coastal property widening to +3,1% which is the highest since mid-2005. Coastal prices have risen by +8% in March 2022 (latest available statistics) compared to +4,9% for non-coastal.