House price growth is slowing as consumer debt levels rise

According to the most recent FNB Residential Property Barometer, house price growth is decreasing.

In January of this year, annual growth was 2.7%, compared to 2.9% in December of 2022.

According to the index assessment, the significantly “softer” demand is the result of rising living costs and declining affordability. The high interest rate hike cycle, in particular, has reduced affordability, making it difficult for purchasers to save enough for a down payment.

The South African Reserve Bank (SARB) raised its benchmark repo rate by 25 basis points in January to 7.25%, resulting in a prime lending rate of 10.75%. This was the seventh increase since November 20, 2021.

FNB anticipates a reduction in home-buying activity in the coming months as affordability tightens. It forecasts a 2% increase in housing prices this year, compared to 3.5% and 4.2% increases in 2022 and 2021, respectively. The bank also believes that price growth will start up again in the second quarter of 2024, when interest rate pressures are expected to relax.

Price ranges

Price rise is slowing across all price groups and in all major cities.

Since consumers experience financial duress, FNB forecasts decreased sales volumes and price rise in the affordable market. Nonetheless, it emphasises that volumes in this category will benefit from individuals “buying down” from higher-priced residences as debt payments rise.

Additionally, several lenders are increasing their attention on this industry and developing innovations to boost affordability. They include extended mortgage terms and group purchasing alternatives.

FNB forecasts a reduction in buying activity in the intermediate and affluent price groups this year, partially owing to weaker buyer confidence.

At the same time, it anticipates that supply-side factors will have a beneficial influence on pricing in these areas. They include a slowdown in sales owing to emigration and a decrease in new dwelling unit building.