Stats corner: rapid response to first rate cut

A 25 percentage point drop in interest rates may not seem like much, but the long-awaited September cut is already having a positive, if limited, effect on the market, according to the latest BetterBond Property Brief.

Home loan applications immediately shot up by 18% and, by the end of October, were 30% ahead of where they were during the same month of 2023. This indicates the extent of the pent-up demand that exists in the market due to the high interest rates of the past two years, and that is further underlined by the fact that house prices are also already on an upward trend.

The BetterBond report shows that the average home price showed a year-on-year gain of 3,3% in October, which put it 39% ahead of the average price achieved in October 2019, just before the Covid-19 pandemic.

The average home price paid by FTBs rose even more, by 4,1% in October compared to the same month of 2023, which is of course good news for property sellers - but not such a positive for those who are still waiting to gain entry to the market. 

In addition, BetterBond notes lingering bank caution due to a 19% increase in credit impairments over the past two years which has resulted in huge increases in the average value of deposit required before they will grant new loans.

This showed a steep across-the-board increase of 4,7% in October, with first time buyers faring even worse as they were required to increase their average deposit amount by a whopping 13%. 

Meanwhile, the average income that homebuyers need to qualify for a home loan has risen by 7,6% over the past two years to around R62 000, which is more than twice the average monthly income in the formal sector - while first time buyers now need to earn 21% more than they did two years ago.

Consequently, it would seem that a much more substantial decline in interest rates will be required before the market recovery is able to gain real momentum, and that home sellers should continue to exercise restraint in pricing their properties.