Residential property prices softened slightly in June on declining demand as the high interest rates continue making it difficult to sell houses.
The FNB Residential Property Barometer released yesterday showed that the House Price Index grew by 0.5% year on year in June, a slight improvement from 0.3% recorded in May.
Siphamandla Mkhwanazi, FNB senior economist, said the low house price growth trajectory aligned with expectations given the persistent high cost of living and borrowing costs.
“Notably, lower-priced segments and non-metro regions continue to perform better. Market strength indicators suggest a potential stabilisation in supply and demand dynamics, following a period of decline,” Mkhwanazi said.
“We maintain a cautiously optimistic outlook for the remainder of the year.”
Mkhwanazi added that slower price increases and the possibility of interest rate cuts supported the bottoming out of buying activity.
“Additionally, if the new administration implements pro-growth policies, lower interest rates could further support potential buyers and lead to a revitalised housing market,” he said.
FNB’s 2Q24 Estate Agent Survey highlighted that market activity was low due to election jitters, and affordability concerns.
However, the reading was above the most recent lows, which suggested that a potential bottoming out occurred between the second and third quarters of last year.
The survey also highlighted that the affordable housing segment was a bright spot with higher activity.
It said the buying activity in this segment appeared to be further supported by a search for less expensive properties, as elevated interest rates and stricter lending standards stretched affordability for many.
The survey showed that the slowdown in activity translated to longer selling times as properties remained on the market for an average of 12 weeks and two days in the second quarter, up from 10 weeks and six days in the first quarter. This weakness affected all regions and price points.
“Consequently, agent sentiment soured, with agent satisfaction dropping from 56% to 51%,” FNB said.
“Interestingly, this decline aligns with weaker sentiment in the interest-rate sensitive new vehicle dealer sector, but contrasts with broader economic sentiment as reflected in the RMB/BER Business confidence index for Q2.”
The survey also dived into the motivations behind property sales.
Downscaling due to life stage – which included those moving to retirement homes – remained the most common reason in South Africa, accounting for 22% of total sales.
Financial pressure-induced sales rose slightly to 21% in the second quarter, aligning with the historical average and suggesting a persistent trend of sellers motivated by high debt-service costs.
Interestingly, the survey revealed a preference among these financially-motivated sellers to downsize rather than rent, reinforcing the continued buying-down trend.
Relocation within South Africa (semigration) remained steady at 14%, exceeding the long-term average.
Upgrading activity, however, slowed significantly to 11% reflecting a cautious approach by homeowners in the current market climate.
Emigration-related sales remained unchanged at 8%, highlighting a shift away from the peak observed in 2019.
“Affordability concerns, election anxiety, and high interest rates dampened activity as well as agent sentiment in Q2. However, the resilience of the affordable housing segment and pockets of regional strength offer some tentative signs of hope,” Mkhwanazi said.
BUSINESS REPORT