Stability is the real key to higher home sales and prices

In the past three months, home prices have been achieving annual growth rates higher than inflation, which is a definite sign of a positive trend in the residential property market that has great potential for further improvement if SA can maintain political stability.

According to the latest stats from home loan originator BetterBond, the average home price at the end of May was 7,6% higher than it was a year ago, while the annual inflation rate, which has been back on the decline since March, stood at just 5,3%.

In addition, BetterBond reports a 4,4% bump in home loan applications in the first quarter of this year compared to the last quarter of 2023, and a 1,2% year-on-year increase at the end of May.

This means that there are definitely more buyers in the market, and more sales happening, but to consolidate this hopeful shift, consumers will need to see interest rates start coming down sooner rather than later, and the economy starting to grow at a faster pace.

However, Reserve Bank Governor, Lesetja Kganyago has made it very clear in the past few days that the Monetary Policy Committee, which makes the decisions about interest rates, does not believe that it has "tamed" inflation or that it can start aggressively cutting rates just yet. 

He did say that the inflation rate was expected to reach 4,5%, the midpoint of the bank's 3% to 6% target range, early next year rather than at the end of 2025, and that this might allow the MPC to start lowering rates somewhat earlier than expected, but he also noted that there were certain big risks that could radically change that scenario.

These risks include the potential effects of climate change on food production in SA and any big increase in the oil price but the biggest of all is volatility in the Rand exchange rate as a result of political instability and a loss of confidence on the part of both local and foreign investors.

A weaker Rand due to an outflow of capital from SA would mean higher (imported) inflation and a lower chance of interest rates being cut, which is why it is so important to the real estate market for SA's new government to demonstrate that it is stable, functional and investor-friendly.

First-time buyers in particular will continue to struggle to get into the market until rates come down, and that will limit the growth that can be achieved overall. The BetterBond figures show that the average deposit required by lenders before they will approve a home loan has risen from 16% of the home purchase price at the end of 2021, when interest rates started going up, to 21% of the purchase price now - and that is particularly hard on young, prospective buyers who are already struggling to cope with the high cost of living.

In addition, the salaries of home loan applicants in the 20 to 30 age bracket have only risen by an average of 4,8% in the past year, compared to an 8,3% average increase for those in the 40 to 50 age group. 

And as a result, the percentage of home loans being granted for properties costing less than R1m has already declined by 12,1%, while the percentage of loans for homes priced at more than R2m has increased by 16,8%.

The silver lining here is sustained demand in the rental market, although rental growth has tapered off again this year following a growth spurt in 2023. But there are many large developers holding literally thousands of unsold apartments and townhouses at the moment, and once again, stability and confidence will be the key to getting interest rates low enough again to prompt and enable mass sales to first-time buyers and buy-to-let investors.

And of course. a politically stable and economically positive environment is what we are all hoping will be firmly established in the next few weeks and months, so that the property industry - and the country as a whole - can realise the full potential of the current "green shoots" of growth.