What's going on with interest rates?

When it comes to interest rates, the Reserve Bank (SARB)currently has very little room to manoeuvre, so we are not expecting any significant changes for the next few months at least.

The biggest obstacle to getting rates down is the US Federal Reserve, which last week decided to keep its federal funds rate range at 5.25% to 5.5%. This is the US equivalent of the SARB repo rate, and is currently at its highest level since January 2001, following 11 increases between March 2022 and July 2023.

In order to make SA an attractive proposition for currency investors, the SARB needs to maintain a differential of around 3% between the US and SA rates. And the reason that's a problem for us is that the Fed is now expected to only start lowering its rate in the second half of this year, and then only by 0,25% at a time.

The second problem for the SARB at the moment is that local inflation is on the rise again. According to StatsSA, the overall inflation rate for last year was 6%, which was down on 2022 but still at the ceiling of the SARB's 3% to 6% target range.

What is more, the year-on-year inflation rate in February was back at 5,6%, up from 5,3% in January and 5,1% in December. This upward momentum was mostly driving by increases in the costs of housing, utilities, insurance, food and transport, some of which are seasonal, but the SARB will no doubt want to see inflation moving consistently in the other direction before starting to lower the repo rate from its current 8.25%.

This means that there will be continued downward pressure on buyer affordability in the real estate sector for several more months at least, and that sellers should continue to price very carefully, always with the help of an experienced and well informed local estate agent.

The good news is that buyer demand is rising, and that the banks are still keen to lend to those who have good credit records and are buying within their means. Sellers are also increasingly realising that current market conditions make it possible for them to upgrade now at lower cost than they expected.