Property market demand is cooling following the strong rebound in the second half of last year that continued into the first half of this year, FNB’s property barometer for August showed. Photo: AP Photo/Steven Senne
Property market demand is cooling following the strong rebound in the second half of last year that continued into the first half of this year, FNB’s property barometer for August showed. Photo: AP Photo/Steven Senne

Demand for new homes starts to fall, house prices growth is decelerating

By Edward West Time of article published Sep 9, 2021

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PROPERTY market demand is cooling following the strong rebound in the second half of last year that continued into the first half of this year, FNB’s property barometer for August showed.

The FNB HPI annual house price appreciation decelerated to 2.6 percent year-on-year (y/y) in August, from 3.4 percent in July, economist for the bank Siphamandla Mkhwanazi said yesterday.

This coincided with a weakening of the bank’s market strength index, as demand growth slowed relative to supply.

Estate agent activity also moderated across price segments, as evidenced in the latest FNB Estate Agents Survey.

However, mortgage extension in July rose by 7.2 percent y/y, the quickest in 12 years.

“This seems at odds with demand and market activity indicators, a conundrum compounded by the fact that loan-to-value ratios (proportion of the loan that lenders are willing to finance) have also descended from recent highs in the fourth quarter of 2020.”

However, said Mkhwanazi, house prices had risen by a cumulative 5.6 percent since January last year.

Deeds registry data showed that average home loan size had become bigger, growing by 14.6 percent in the same period.

Similarly, internal applications data showed the average purchase price had risen by 14.5 percent between January lat year and July this year, partly driven by higher house prices, and a demand-shift towards higher price brackets, facilitated by very low interest rates.

“So, while volumes and loan-to-price ratios may be slowing, which would imply slowing mortgage extension, the rise in purchase prices and loan sizes might have counteracted this, explaining the uptrend,” he said.

The bank’s property market strength indicators were still above 2019 levels, reflecting the positive effect of lower interest rates, and changing housing needs such as working from home and home schooling, he said.

The deceleration in house price growth was in line with FNB’s expectations and reflected waning interest rate-induced demand and swelling labour market pressures.

Demand driven by consumer shifts from renting to owning may also have peaked, which was reflected in stabilising flat vacancy rates and bottoming rental inflation.

“These shifts played a vital role in supporting home-buying activity in the first half of 2020 and into 2021, mostly in middle-priced segments.

“With this demand losing momentum, it is not surprising that the deceleration in house prices is more pronounced in middle-priced segments,” said Mkhwanazi.

Nevertheless, he still expected better annual house price growth in 2021, reflecting comparatively stronger demand and a brighter GDP growth outlook. “Our investigations show that much credit (home loans) is funding purchases in the middle- to upperpriced segments.

“As such, mortgage loan sizes have become bigger, reflecting a shift towards higher price brackets,” he said.

“We have consistently argued that property prices have been unusually slow to adjust to the weak consumer fundamentals.

“We explained that support has come from unprecedented factors, such as historically low interest rates; the nature of the crisis, which incentivised property ownership; the concerted response from lenders that smoothed the impact of severe job losses on housing markets, as well as the relative abundance of credit despite these job losses,” he said.

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