Time for buyers to get ahead of the game

What goes up must come down, they say, and that is certainly what we anticipate will start happening to interest rates in the second half of this year, as inflation moderates and the Reserve Bank is able to follow other central banks in trying to stimulate economic activity and create jobs. 

And as this improves affordability, we also anticipate that there will be a steady turnaround from the current buyers' market in which there is an oversupply of inventory in most areas, to a sellers' market in which competition for the available stock will put upward pressure on home prices.

As things stand, prices in most areas and market segments are flat at best, with sales volumes across SA having shown a 29% decrease in 2023 compared to 2022. This is due, though, to a lack of affordability rather than a lack of demand. The interest rate jump from 7% to 11,75% has prevented many prospective buyers from being able to enter the market and this has kept a tight lid on prices - except in the Western Cape, where sustained high sales activity since 2021 has depleted inventory and caused prices to rocket.

However, we know that there is a wave of buyers waiting to surge into the market once interest rate start falling, thanks to certain market leading indicators that we track in our offices. In Johannesburg, for example, we can see that potential buyers have recently exceeded our expectations for property viewings by 150%, indicating a growing interest in purchasing as soon as it becomes easier to qualify for a home loan and afford the monthly repayments. 

At the same time, we can see that there will not be much new housing stock coming to market for quite some time. StatsSA reports that the number of new residential buildings completed in SAs major municipalities decreased by some 15% last year compared to 2022. In addition, the total number of plans passed for future residential buildings showed a decline of more than 25% in 2023 compared to 2022, while the value of those plans declined by 19%.

In addition, we foresee that quite a number of existing owners may become reluctant to sell when interest rates first start dropping, preferring to wait until home prices start to rise again - or until they can obtain a new home loan themselves at a lower interest rate. 

So the bottom line here is that buyers should not be holding their breath now until the Reserve Bank announces the first interest rate decreases, which it is expected to do around mid-year. The market is clearly at the bottom of the cycle and current sellers are generally motivated and very willing to negotiate, so they should be making the most of a rare opportunity to buy at prices that have not shifted much in two to three years, and are generally well below peak valuation.

This will enable them to reap the advantages of both rising property values and declining rates going forward.