House property price growth resilient, but slowing
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CAPE TOWN - THE ANTICIPATED release of more housing stock into the housing market and large-scale job losses among middle-income earners are expected to have a dampening effect on property market activity and prices in the coming months.
First National Bank (FNB) senior economist Siphamandla Mkhwanazi said in the latest FNB Property Barometer yesterday that the lower-end-priced property market remained relatively strong but was decelerating in line with the initial impact of Covid-19 on labour markets.
“We expect this ‘correction’ to continue, as employment takes time to recover. However, inherent stock shortages will likely keep values afloat. Indeed, estate agents operating in affordable segments still see demand outstripping supply,” he said.
Much of the reflation in property in the second half of last year was driven by the middle segments, buoyed by low interest rates and the demand for bigger spaces to do remote work. It is was in part also driven by tenants switching from renting to owning.
However, it was unlikely “that there is much of this demand left in the tank – Stats SA data shows that 66 000 professionals lost jobs in fourth quarter of 2020, which does not augur well for mortgage demand”, said Mkhwanazi.
“Furthermore, as pressure in the rental market intensifies, we expect more stock to be released to the market for sale,” he said.
Recent data nevertheless showed better-than-expected house price growth, further demonstrating the decoupling of economic fundamentals and housing market outcomes.
Low interest rate-induced demand remained strong, but momentum was slowing. Downscaling due to financial pressure continued to swell.
Rental market pressures persist; vacancy rates were climbing and rental escalations were slowing. Anecdotal evidence showed that some of this stock was being released into the market for sale.
Labour market weakness remained a concern, with data showing that job losses were now migrating to white-collar workers.
In February, house price appreciation rose to 4.2 percent year-on-year, up from 3.9 percent in January. On a month-on-month basis, however, price growth continued to slow, likely reflecting the tapering of interest rate-induced demand.
This was consistent with Estate Agents Survey data, which showed strong but slowing buyer demand, mainly in the middle-priced segments of the market.
Prices in the upper end had, over a prolonged period, adjusted lower, due to receding demand and rising incidents of selling due to emigration.
Data showed that property prices in the top 1 percent price distribution declined by an average of 5.5 percent last year.
“For 2021, we expect less negative price growth, as owners delay their selling decisions due to unfavourable selling conditions and emigration trends.”
Forward-looking indicators suggested slowing demand overall in the first quarter of this year, with only 37 percent of surveyed agents expecting volumes to increase from levels in the fourth quarter of last year.
“We continue to see bigger, mainly free-standing properties gaining in popularity, with buyers responding to the demands of remote working,” he said.
“Overall, property prices have been unusually slow to adjust to the evidently weak consumer fundamentals. In part, this is due to the nature of the crisis, which incentivised property ownership, as well as a concerted response from lenders that smoothed the impact on housing markets,” he said.