News Research

Private sector employment drive could mitigate a less supportive home buying environment

Early signs in SA’s labour market indices suggest that certain industries in the private sector are planning to increase their recruitment drives following a prolonged period of reducing their employee bases relative to payroll.

This, coupled with the shifts in housing needs and the banks’ appetite for quality lending, could mitigate the impact of a less supportive medium-term environment for home buyers on the back of rising interest rates and inflationary pressure, says Siphamandla Mkhwanazi, Senior Economist at FNB.

Annual house price growth moved lower in April

The FNB House Price Index growth moved slightly lower in April, averaging 3.9% year-on-year from 4.1% in March 2022. Price growth appears to have stabilised in the last few months with support predominantly coming from the ‘more expensive’ segments. Market strength indicators, derived from FNB’s property valuer’s database, show receding supply of properties on the market for sale, while demand growth remains in the positive territory, albeit slowing.

Despite the rising cost of funding, residential market activity and credit availability remain intact. Mortgage credit extension averaged 6.8% year-on-year in the last three months, surpassing average house price growth of 4% in the same period. This market wide loan-to-price ratio, derived from Deeds data, has also increased to 94.9% in Q1 2022 – the highest level in approximately fourteen years (since Q2 2008).

Market-wide mortgage volumes are still above pre-pandemic levels, even with the incomplete Q1 2022 data point but geopolitical tensions and the devastating floods in KwaZulu-Natal pose a downside risk.  

A gradual recovery in the residential rental market is underway with vacancy rates descending from a peak of 13.1% in Q4 2020 to 9.9% in Q1 2022. Rental escalations have gradually recovered from a trough of 0.6% year-on-year in Q1 2021 to 1.9% in Q1 2022 and FNB expects the rental market’s recovery to continue as interest rates rise and employment growth gathers traction.