No less demand but prices under pressure as rates increase

To date, the interest rate increases that began in November 2021 have not had any meaningful effect on home sales volumes, which are still higher than they were before the onset of the Covid-19 pandemic and, in some instances, at record levels.

"And although it was the most substantial in years, this month's hike of 75 basis points is not expected to make much of a dent either," says Berry Everitt, CEO of the Chas Everitt property group. "The increase takes the home loan base rate to 9%, which is getting close to its pre-pandemic level, but there is still no shortage of demand - or of mortgage finance from the banks.

"In fact, we think the ready availability of home loans with very low deposit requirements is actually one of the main drivers of continued demand now, with many buyers looking to qualify for a loan before they are shut out of the market by the fact that salaries are growing much more slowly than either inflation or the rising interest rates. 

"In addition, a growing percentage of buyers are making use of bond originators to help them to make the most of the fierce competition between banks for new home loan business and negotiate the most favourable interest rates and deposit levels."

The other major factor behind still-buoyant sales, he says, is that house price growth is slowing down and creating some additional leeway for buyers who might otherwise have been forced out of the market due to a lack of affordability.

"Having said that, though, there has been a definite shift in the market in favour of repeat buyers. At this time last year, first-time buyers were flooding the market and accounted, in some months, for more than 70% of transactions. Currently, the split is about 50/ 50, which indicates that young, first-time buyers are starting to struggle with affordability as they deal with rampant fuel, food and electricity costs as well as rising interest rates.

"Repeat buyers, on the other hand, are often able to make use of some equity that they have built up in their home to pay a bigger deposit, borrow less and lower the monthly bond instalment on their new home in that way. What is more, many are also lowering their overall household expenditure by downsizing to smaller homes in estates or moving out of cities to other areas and towns where land and homes are cheaper."

Meanwhile, says Everitt, home sellers should be aware of the transition that is taking place in the market and will accelerate with the additional interest rate increases expected over the next 12 months. "Even if the amount of inventory does not increase significantly, and even if the current rate of demand is maintained, affordability is going to decline across the board, and buyers are going to become hyper-focused on value for money. 

"This is going to put downward pressure on price growth, if not prices themselves, and our advice to serious sellers is to anticipate this and start setting their asking prices accordingly. They should also seek out agents with excellent negotiating skills and the backing of a company with the resources to ensure that their home really receives maximum exposure to potential buyers, and the ability to sustain the transaction all the way through to registration."

Issued by Chas Everitt International

For more information

Call Berry Everitt on

082-441-3601

Or visit www.chaseveritt.co.za