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Early signs of possible job growth may boost residential property activity

INTERNAL market strength indicators suggested that residential property market activity would remain relatively resilient in the near term, says FNB. Picture: Dan Riedlhuber, Reuters.

INTERNAL market strength indicators suggested that residential property market activity would remain relatively resilient in the near term, says FNB. Picture: Dan Riedlhuber, Reuters.

Published May 9, 2022

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EARLY signals in employment intentions indices suggested certain industries were planning to add headcount after a prolonged period of reducing headcount relative to payroll, and this may support for residential housing market in the short term, FNB senior economist Siphamandla Mkhwanazi said on Friday.

He said the FNB Residential Property Barometer and Estate Agents Survey showed that residential property market sales volumes may have peaked, but were still above pre-pandemic levels.

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Internal market strength indicators suggested that residential property market activity would remain relatively resilient in the near term, in spite of the sentiment shock from ongoing geopolitical tensions and devastating floods in some parts of the country.

On the other hand, the stagnant labour market, combined with rising interest rates and higher living costs suggested a less supportive medium-term environment for home-buying activity.

“We expect interest rates to increase by a cumulative 150 basis points this year, on the back of rising inflationary pressures, exacerbated by the ongoing geopolitical tensions,” Mkhwanazi said.

However, indications of an increase in payrolls in some industries, combined with shifts in housing needs and banks’ appetite for quality lending could mitigate the impact of the less supportive environment, he said.

The FNB House Price Index growth moved slightly lower in April, averaging 3.9 percent year-on-year from 4.1 percent in March.

“Price growth appears to have stabilised in the last few months, with overall support predominantly coming from pricier segments. Market strength indicators, derived from our Property Valuers database, show receding supply of properties for sale, while demand growth remains in the positive territory, albeit slowing,” he said.

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Despite the rising cost of funding, market activity and credit availability remained intact. Mortgage credit extension averaged 6.8 percent y/y in the last three months for which data was available, surpassing average house price growth of 4 percent in the same period.

The market-wide loan to price ratio, derived from deeds data, had also increased to 94.9 percent in the first quarter, the highest level in about 14 years.

“Market-wide mortgage volumes are still above pre-pandemic levels,” he said.

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A gradual recovery in the rental market was underway. Vacancy rates had fallen from 13.1 percent in the fourth quarter of 2020 to 9.9 percent in the first quarter of 2022.

“We expect the rental market’s gradual recovery to continue as interest rates rise and employment growth gathers some traction,” Mkhwanazi said.

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