With the anticipation of earlier interest rate cutting during 2024 and early 2025, FNB says they have a slightly more optimistic outlook for the residential property market and house price growth in the coming years.
Improved economic activity and a gentler inflation environment could improve affordability for potential homebuyers, stimulating demand and supporting house price growth.
While lower disposable income and a higher cost of credit having adversely impacted demand, the slowing trend appears to have stabilised since May 2024, and it is expected to show a clearer upward trend once interest rates begin to decline.
Growth in mortgage extensions slowed in July 2024 to 2.5% from 2.7% in June 2024 with Deeds data suggesting that while loan-to-price ratios have stabilised, mortgage volumes are still declining.
The residential rental market exhibits mixed trends with rental inflation falling slightly to 3.2% during Q2 2024 from 3.3% which reflects weak demand and landlords’ diminished pricing power in a market with abundant options. However, Rode’s residential survey data indicates that vacancy rates for apartments decreased during Q2 2024 to 6.7% from 7.9% in the previous quarter. While this indicates an improvement, it remains higher than pre-pandemic levels where vacancy rates averaged 5.4%, suggesting a surplus of rental properties.
While interest rates may favour renting over buying, the data suggests that it has not been sufficient to absorb the excess supply.
FNB’s Q2 2024 Estate Agent Survey has suggested that most households who are selling due to financial pressure would rather downscale than go back into the rental market. On the supply side, the volume of new builds is declining which mirrors subdued demand.
The supply of new stock decreased by 19.2% compared to 2023’s same period with the downturn particularly pronounced in the <80 square metre category which primarily represents affordable housing.
The pipeline supply is also shrinking as evidenced by a 19.6% year-to-date decline in the volume of approved building plans following a 30% decline in the same period during 2023. These developments reflect the weakened demand environment indicating that building activity will likely remain low until a significant increase in overall housing demand and selling prices is evident.
