CAN LOW INTEREST RATES CONTINUE TO BOOST THE HOUSING MARKET?

It’s been a year of paradoxes. “No one expected a pandemic would send shockwaves through most sectors of the economy, or that the housing market would emerge as one of the surprise success stories,” says Carl Coetzee, CEO

of BetterBond. And then last week, parts of the country came to a standstill as looters ran rampant through KwaZulu-Natal and parts of Gauteng. “The question now is whether the property market will be able to rebound from the unrest and a potential dip in consumer confidence?”

While it is too soon to gauge the full impact of recent events, Coetzee says one needs to reflect on the significant impact which record-low interest rates have had on market performance in the past year. “Instead of the downward spiral in house prices and slowdown in buyer activity many anticipated; the opposite happened. Five consecutive repo rate cuts during the year resulted in more people buying homes than before the pandemic,” says Coetzee. First-home buyers particularly made the most of improved affordability and lower bond repayments, accounting for 70% of BetterBond’s applications for the latter part of 2020.

“If the past year has shown us anything, it’s that lower interest rates and shifts in homeownership behaviour have done enough to build the resilience the market will need to withstand this latest challenge,” says Coetzee. Economic forecasts suggest that the South African Reserve Bank is likely to hold the repo rate steady at 3.5% when it meets on Thursday. This would be the sixth time the repo rate has held steady in a bid to stimulate the economy. “An accommodative approach to the repo rate is even more likely, given the unfortunate events of the past week.

However, even if there is a nominal increase, the prime lending rate will still be well below the 10% it was in January 2020,” says Coetzee.

“The first-home buyer uptick we saw in the second half of 2020 has tempered, and much of the activity we are observing now is from repeat buyers looking to relocate as they can now work from home, or those wanting to make the most of the record-low interest rate,” explains Coetzee. “These buyers may, after last week’s events, consider semigrating to regions usually considered to be holiday destinations. It won’t damper overall buyer activity, but may see some provinces and metropolitan areas outperforming others.”

House prices, always a good indicator of the state of the market, look set to increase by an average of almost 3% over the next six months, says the SARB Repo Rate Forecast. The latest Lightstone report (June) puts the annual house price inflation, as of May 2021, at 4.9%, with price growth increasing across all provinces. Also encouraging is that the time properties are staying on the market remains at about eight weeks, way better than the long-term average of 13 weeks. New semigration trends may add impetus to house price growth in some provinces, adds Coetzee.

“We believe that record-low interest rates, and the forecast that they will remain below 10% for a good few months yet, bodes well for the property market. While the unrest is likely to dent consumer confidence, BetterBond takes comfort in the fact that the Absa Homeowner Sentiment Index (June) showed a fourth consecutive quarter of positive sentiment towards buying property, and its highest since the Index was launched in 2015,” says Coetzee. More than a year of single-digit interest rates has gone a long way to consolidating South Africa’s residential property market. “While we are mindful that they will not remain this low indefinitely, there has still never been a better time to apply for a bond,” concludes Coetzee.