Research Residential

Newly found ‘buyer exuberance’ evident in residential market


The FNB House Price Index (HPI) has highlighted an annual house price growth acceleration in August, reaching 2.8% year-on-year and up from 1.8% in July (revised up from 1.4%).

The rebound in prices is supported by the unexpected rapid recovery in market activity since the easing of lockdown restrictions.

Our initial expectations were for the pandemic to have a more chilling and lingering impact on activity with demand picking up only later this year and into next year” comments Siphamandla Mkhwanazi, Property Economist at FNB. “In contrast, the FNB mortgage applications data, combined with data from mortgage originators, shows volume of new mortgage applications to have surpassed pre-lockdown levels, reaching new highs in the last three months.”

In addition, new data from the FNB Estate Agents survey shows the average time a property is on the market improved from fourteen weeks and one day in 2020’s second quarter to just ten weeks and six days in the third quarter.

Importantly, the newly found ‘buyer exuberance’ is evident across the price spectrum. This resurgence in market activity is fuelled by the aggressively lower interest rates, lower prices in some (mainly affluent) suburbs and lower transfer duties. These factors have improved affordability and lured renters and first-time buyers into purchasing property. Preliminary data from the Deeds Office shows a marked increase in the transaction volumes attributed to ‘younger’ buyers (below thirty-five years old), from 38% of total in 2018 to around 42% in 2020.

It remains unclear whether this is a transitory impulse, fuelled by the positive factors outlined above or, more of a fundamental shift in the local property market. While a welcome green shoot, the rising activity (and by extension, house prices) contrasts with the adverse impact of the pandemic on household earning and the anecdotal evidence of rising unemployment, signalling tight lending conditions.

On the other hand, annual growth in mortgage advances have not shown signs of improvement. SARB data shows the pace of mortgage extensions to have stabilised at 2.9% year-on-year in July, marginally lower than the 3.0% recorded in the previous month. However, momentum is clearly picking up and now retracing pre-lockdown levels: month on month growth quickened.

While this gain in momentum is consistent with increased activity, this pace still lags that of other market activity indicators, suggesting some degree of caution among lenders.

Looking ahead, the historically low interest rates and lower transfer duties (particularly in the middle-priced segment) will continue to support activity and by extension, house prices in the near term.

However, there is still a great deal of uncertainty around the lasting impact of the pandemic. Our expectation of a significant weakening in labour market conditions implies a greater downward pressure on house prices in the medium term” concludes Mkhwanazi.

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