Mortgage approvals during the first nine months of 2021 were approximately 34% higher compared to the same period in 2019, according to Deeds Office data and FNB’s latest Residential Property Barometer, with the value of outstanding mortgage advances 7.3% higher when compared to the same period in 2020, and 11% higher compared to 2019.
The data also shows that the average mortgage size approved was approximately 16% and 13% higher compared to the same periods in 2019 and 2020.
The resurgence in market volumes were more pronounced in the affordable segments which, prior to the pandemic, were experiencing a faster-paced growth in demand when compared to all other price segments.
While market strength indicators show that growth in demand has moderated, market volumes are still running above pre-pandemic levels with the value of mortgage extensions continues to trend higher, reflecting a shift towards higher price brackets (or bigger properties).
FNB’s estimated market-wide loan-to-price ratio is trending lower with buyers now needing to fork out slightly bigger upfront deposits relative to 2020’s average, but still smaller compared to 2019.
The value of an approved (and taken up) mortgage relative to the purchase price was 92.1% during Q3 2021, backtracking from a peak of 93.1% in Q4 2020. At the same time, market volumes are migrating away from younger buyers i.e., 35 years old and younger, towards middle-aged (35 to 55 years old) and, to a lesser extent, older aged groups of 55 years and upwards with these buyers tending to have equity and access to savings to fund upfront deposits. Nevertheless, the loan-to-price ratio remains above the post-global financial crisis average of 89.9%.
With interest rates set to increase by at least 75 bps this year, on the back of rising inflationary pressures and global monetary policy conditions, this may have a cooling effect on market volumes and eventually price growth. It is important to note that the current wave of buying activity is predominantly driven by buyers who are less sensitive to interest rate hikes.
The slow recovery in the labour market, coupled with rising interest rates, suggests a less supportive medium-term environment for home buyers but, if sustained, the ongoing shifts in housing needs could mitigate this impact.
Annual house price growth stabilised in December 2021
The FNB House Price Index recorded 3.5%, from 3.4% in November, suggesting that house price growth has averaged 4.2% in 2021, up from 2.5% in 2020.
Having peaked at 4.8% in Q2 2021, the second quarter of 2021 was characterised by a slow pace of market volumes and house price growth. FNB anticipates house prices to average between 3% and 4% in 2022.
A summary of the Estate Agents Survey results Q4 2021:
- Housing market activity improved marginally during Q4 2021, recording a rating of 6.5 (Q3: 6.3). While most of this improvement could be driven by seasonality during Q4, the survey reveals a recovery, albeit incomplete, in KwaZulu-Natal following the civil unrest. Activity is strongest in the Western Cape (7.6) and the Eastern Cape (7.1). Activity is the strongest in the affordable (less than R750 000) and affluent markets (greater than R3.6 million). Within the affordable segment, estate agents saw stronger activity in the R250 000 to R500 000 sub-segment However, only a third (33%) of the estate agents expect activity to increase from current levels in the next three months. (Q3 2021: 45%).
- Average time properties spent on the market shortened to seven weeks and six days from eight weeks and six days in the previous quarter. This rating was similar across the price segments, except for ‘affluent’ which recorded eight weeks and two days. At seven weeks and six days, time on the market is well below the post-global financial crisis average (since 2009) of fourteen weeks and 1 day.
- The estate agents’ market sentiment improved marginally across the segments and regions, from 74% to 76% in Q4 2021, with improvement more visible in KwaZulu-Natal (62%) up from the riot-induced 51% in Q3 2021. Sentiment is more ‘upbeat’ in the Western Cape and Eastern Cape at 87%.
- The reason for selling remained broadly unchanged from the previous quarter, showing that sales, due to financial pressure, are still elevated at an estimated 20% of the market, while emigration-related sales remain stable at around 8%. This ratio increases to 14% and 11% in the R2.6 million to R3.6 million segment and the R3.6 million (and under) segment. In Q3 2021, KwaZulu-Natal saw an increase in selling due to security reasons to 11% from 8% in the previous quarter which reverted to 7%, similar to the national average.