FNB’s House Price Index’s annual growth in March 2023 averaged 2.1% year-on-year, down from 2.3% in February 2023 which represents the lowest home price growth since July 2020 and takes average growth to 2.4% year-on-year in Q1 2023, down from 3.1% in Q4 2022.
SARB’s latest Quarterly Bulletin data reveals that while household income continued to find support from non-labour income (approximately 30% of household disposable income), labour market fragilities are apparent. Real compensation of employees (or labour income, 70% of household income) declined across virtually all sectors in 2022 and continue to fall below pre-pandemic levels, as wages lag behind inflation.
Furthermore, households are now steadily shifting away from asset-backed credit and toward unsecured credit, increasing their uptake of non-bank credit which is generally more expensive, but arguably easier to access. Overall, the increased reliance on unsecured credit, in part, reflects households’ investment into alternative energy sources. This also likely reflects distressed borrowing by households with more constrained budgets and these trends amplify risks of credit defaults, particularly in the non-bank sector and among lower income segments.
The move away from asset accumulation is weighing on household wealth levels. Household net worth, defined as the value of household assets minus outstanding liabilities and used as a proxy for household balance sheet strength, is receding.
In addition, household savings, accumulated during lockdown, have now been depleted implying that households are left with limited buffers to weather the economic downturn, and a less supportive home buying environment.
Positively though, overall household indebtedness remains relatively contained by historical standards. This, in conjunction with still strong non-labour income growth implies that there may still be pockets (likely few higher income households) with capacity to take on big-ticket purchases.
However, it could also mean that the distribution of risks across income groups is highly uneven.
The FNB Estate Agents Survey results indicate that incidents of downscaling are more prevalent in lower-priced segments.
FNB maintains its view of slower house price growth of around 2% for 2023. The price growth trend is expected to start lifting in the second half of 2024 as interest rate pressures ease, and marginal buyers return to the market.