Research Residential

The weakened state of the labour market a concern in the residential sector

FNB economist, Siphamandla Mkhwanazi.
Senior Economist at FNB, Siphamandla Mkhwanazi.

FNB’s Residential Property Barometer for February 2021 shows better-than expected house price growth further demonstrating the separation between economic fundamentals and housing marketing outcomes.

Interest rate-induced demand remains strong, but the momentum is slowing with incidents of downscaling due to financial pressure continuing to swell, although lower to the Global Financial Crisis.

However, rental market pressures persist with vacancy rates climbing and rental escalations slowing. Anecdotal evidence shows that some of this stock is being released into the market for sale.

Labour market weaknesses remain a major concern. The data shows that job losses are migrating to more white-collar workers.

The annual House Price Growth (HPI) accelerates in February

FNB’s annual house price appreciation rose in February to 4.2% year-on-year, up from 3.9% in January. However, on a month-on-month basis, price growth continues to slow which likely reflects the tapering of the interest rate induced demand. This data is consistent with the estate agents survey data which showed strong but slowing buyer demand, mainly in the middle-priced segments of the market.

Indicators have suggested slowing demand in the first quarter of 2021 with only 37% of estate agents expecting volumes to increase from 2020’s fourth quarter levels. FNB continues to see bigger, mainly freestanding properties gaining popularity with buyers responding to the demands of remote working.

The available data shows that lower-end prices remain relatively strong but are decelerating in line with the initial impact on labour markets. We expect this ‘correction’ to continue as employment takes time to recover” says Siphamandla Mkhwanazi, FNB Economist.  

However, the inherent stock shortages will likely keep property values afloat. Estate agents operating in affordable segments still see demand outstripping supply. Much of the reflation in 2H20 was driven by middle segments, buoyed by low interest rates as well as demand for bigger spaces to facilitate remote work. Part of this was also driven by tenants switching from renting to owning. It is unlikely that there is much of this demand left in the tank – Stats SA data shows that 66 000 professionals lost jobs in the fourth quarter of 2020, which does not augur well for mortgage demand”.

As pressure in the rental market intensifies, we expect more stock to be released into the market for sale. A combination of these factors is expected have a dampening effect on activity and, eventually, price growth in the coming months” he concludes.