Johannesburg - New vehicle and house sales, the two big ticket items of households, are set to be dented by the latest hike in interest rates and expected further rates increases this year.
Azar Jammine, the chief economist at Econometrix, said on Friday that the 0.5 percentage point increase in interest rates by the Reserve Bank last week would undoubtedly be negative for new vehicle sales.
However, Jammine said Econometrix had left its new vehicle sales forecast for this year unchanged because it incorporated last week’s interest rate hike and a further 1.5 percentage point increase in rates over the course of this year. Econometrix has forecast year-on-year decline in car sales of 5 percent to 10 percent this year.
Jammine was not as pessimistic about the prospects for the residential property market this year, stressing the trend was not that poor.
“There is some growth and clearly there is still a shortage of housing in the country. With the fall in the rand and acceleration in inflation, there is a case for investment in property as a hedge against inflation.
Feeling the pinch
Rudolf Mahoney, the head of brand and communication at WesBank, said interest rates had now increased by 175 basis points in 24 months, which meant those who had car and home loans since the start of the rates hiking cycle would now really start feeling the effects.
“Every time there’s a 25 basis point hike, a vehicle’s monthly instalment only changes by R20 or R30, but all those small hikes add up,” he said.
Mahoney said rising interest rates and inflation would result in buyers either postponing vehicle purchases, buying down or exiting the new market altogether to find better value in the used market.
John Loos, a household and property sector strategist at FNB Home Loans, said they had seen recent signs of slowing residential demand growth and the further interest rate hike was expected to sustain a slowing trend.
Loos said FNB anticipated house price inflation to decline during the course of this year from recent levels of around 7 percent into lower single digit territory and below consumer price index inflation rates.
Samuel Seeff, the chairman of the Seeff group, said there was no doubt the interest rate hike would have a knock-on effect on the housing market, with average price growth deteriorating further.
Higher levels
But Seeff said the housing market for now was still fairly healthy, with plenty of demand and show house attendance still at much higher levels than five years ago.
“This provides some insulation against some of the economic headwinds. The market is stronger than what it was in the immediate aftermath of the 2008 global credit crisis. Stock levels remain tight and we do not have to contend with the volume of distress that inhibited sales and price growth post 2007/8,” he said.
Andrew Golding, the chief executive of the Pam Golding Property group, said although house price growth had slowed, nominal prices according to Absa were currently at record highs of about R1.386 million while the real price after taking inflation into account, was only 10 percent off the record highs before the global financial crisis.
Kay Geldenhuys, the manager for property finance processing at mortgage originator ooba, said the latest interest rate hike would result in the repayment of a R1 million home loan over a 20 year term now costing a homeowner an additional R331 a month.
BUSINESS REPORT