Durban - The housing market slump looks likely to continue as yet another interest rate hike is expected this week.
The South African Reserve Bank’s (Sarb) Monetary Policy Committee is set to meet tomorrow and economists have predicted a 25 basis points increase in the interest rate due to the inflation rate still being higher than the target range.
In May, the Sarb hiked the interest rate by 50 basis points.
Adrian Goslett, regional director and CEO of RE/MAX of southern Africa, said the series of interest rate increases had begun to visibly affect the local housing market.
“According to Lightstone Property data, as at July 4, a total of 30 343 bond registrations were recorded at the Deeds Office for the period April to July 2023. The RE/MAX National Housing report reveals that this figure is down by a whopping 43% on Q2 2022’s figures.”
Goslett added that the number of houses transferred and properties registered have also dropped in the same period.
“The same data also reflects that the number of transfers (both bonded and unbonded) recorded over the same period amounted to 45 147. When reviewed against the figures from previous RE/MAX National Housing reports, this amount is down by 42% year on year.”
Siphamandla Mkhwanazi, FNB senior economist, said the FNB House Price Index’s annual growth decreased in May, averaging 1.9% year on year, down from 2.1% in April.
“This is consistent with our estate agents survey results, which show that buying activity is dwindling and the average time-on-market is stretching across the spectrum. Agents now estimate that 56% of properties listed for sale take three months or longer to sell.
“From an economic growth perspective, we have revised our expectations lower to reflect the delayed and ongoing impact of higher inflation and tighter than-expected monetary policy.”
Professor Bonke Dumisa, an independent economic analyst, said that less activity in the housing market should be expected given the interest rate hikes.
“The current interest rate is at 8.25%. If we add 3.5%, we find that prime lending is at around 11.75%. If we look back at October 2021, prime lending was at 7% and the interest rate was lower.
“The problem now is that consumers just can’t afford to buy houses because of prime lending being at 11.75%. The other issue is that banks won’t be able to lend money to consumers if they can’t afford it.”
Dumisa added that he expected an interest rate hike of 25 basis points.
“It is a certainty due to inflation being at 6.3% which is still outside the Sarb target of 4-6%. The interest rate hikes have made it difficult for the consumer to pay mortgages and for car financing, and we have noted that there are people who have had their homes and cars repossessed due to them being unable to repay their debt.”
Neil Roets, CEO of debt counselling firm Debt Rescue, said he also expected an increase of 25 basis points in the interest rate.
“I think one of the reasons is that globally there have been interest rate hikes and to ensure that foreign money stays in the country, an interest rate hike is likely. Unfortunately, this filters through and is the reason why we are seeing a reduction in the buying of homes.
“Consumers are looking at renting a property as a cheaper option. When you buy property you have to register a bond and pay transfer costs and pay rates and taxes, all this seems to be discouraging consumers from buying houses.”
Professor Irrshad Kaseeram, of the University of Zululand’s economics department, said that the rise in the repo rate has resulted in homeowners having to outlay more money for property bonds on a monthly basis.
“This is a huge stress. We should see further decline in house sales and corresponding house prices until the repo rate falls to affordable levels.”