Easy lending conditions supportive of purchasing activity

  • The FNB House Price Index edged up moderately to 3.8% year-on-year in September, from 3.7% y/y in the previous month (marginally revised up from 3.6% year-on-year). This takes average quarterly growth to 3.7% year-on-year in the third quarter of 2019, lifting from 3.4% year-on-year in the second quarter of 2019. While price growth remains below inflation, mild improvements in demand and progressive mortgage lending have supported the residential property market in the third quarter of 2019. However, depressed labour markets continue to weigh on household finances, which poses a threat to sustained demand growth.
  • FNB Market Strength Index (a composite index, which gauges demand and supply strength) has revealed a narrowing demand-supply gap over the past few months. This is on the back of both the mild improvement in demand, and the persistently slowing pace at which properties enter the market for resale. This is countered somewhat by the surge in the supply of new stock (particularly flats and townhouses), as well as the rising emigration-related sales.  A further disaggregation of the third quarter of 2019 data shows that this (market strength) improvement was largely broad-based across price buckets. However, data shows the lower-end of the market to be relatively stronger.
  • SARB data shows that mortgage advances have grown at a progressively faster pace, recording 4.9% year-on-year in August – the highest growth since November 2010. In fact, since the beginning of this year, mortgage advances have outpaced average house price growth in South Africa for the first time in since June 2011. Transactions data shows that this has boosted transaction volumes, specifically in the R700k–R1.8m and R1.8m–R3.5m price bands.
  • Further, FNB finds that Loan-to-Price (LTP), estimated using Deeds data, has gradually increased over the last two years, reaching 90.6% in the second quarter of 2019, up from 88% in the second quarter of 2017. While still some distance below all-time high of 96.8% in the fourth quarter of 2017 (at the height of the property boom), this represents the highest LTP in over a decade (since the end of 2008). Thus, not only has there been mild growth in the volume of mortgage transactions, but lenders are also, on average, willing to finance a relatively bigger proportion of the purchase price.
  • Looking ahead, FNB expects broader economic developments, especially employment growth, to continue dictating the longer-term trends. Nevertheless, lower interest rates and constructive lending should provide some support to the property market in the short to medium term.

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