Residential home sale market volumes are still running above pre-pandemic levels even though market strength indicators have moderated, data from FNB’s Residential Property Barometer and FNB Estate Agents Survey for the fourth quarter of 2021 shows.
FNB senior economist Siphamandla Mkhwanazi said yesterday that deeds data, supported by internal mortgage applications volumes, showed that mortgage approvals were about 34 percent higher in the first nine months of 2021 compared to the same period in 2019.
The resurgence in market volumes was more pronounced in the affordable segments, following a more severe decline in 2020 due to the harsher impact of the pandemic on lower income households.
“Lower income buyers tend to be more sensitive to economic shocks. Prior to the pandemic, the more ‘affordable segments were experiencing faster-paced growth in demand compared to the other price segments. Thus, the surge reflects a continuation of that trend, and would also have been fuelled by ultra-low interest rates,” said Mkhwanazi.
He said, however, that the value of mortgage extension continued to trend higher in the fourth quarter.
This reflected a shift towards higher price brackets. By November 2021, the value of outstanding mortgage advances was 7.3 percent higher compared to the same period in 2020, and 11 percent compared to 2019.
Deeds data showed the average mortgage size approved in the first nine months of 2021 was 16 and 13 percent higher compared with the same period in 2019 and 2020 respectively.
“Our estimated market-wide loan-to-price (LTP) ratio is trending lower: buyers now need to fork out slightly bigger upfront deposits relative to the 2020 average, but still smaller compared to 2019.”
The value of an approved mortgage relative to the purchase price was 92.1 percent in the third quarter of 2021 backtracking from a peak of 93.1 percent in the fourth quarter of 2020.
At the same time, market volumes were migrating away from younger buyers towards middle-aged and, to a lesser extent, older-aged groups.
“These buyers tend to have stronger balance sheets and access to savings to fund upfront deposits. Nevertheless, the LTP ratio remains above the post-global financial crisis average of 89.9 percent,” said Mkhwanazi.
He said interest rates were likely to increase by at least 75 basis points this year due to inflationary pressures and less accommodative global monetary policy conditions. While this would cool the market, the current wave of buying activity was being driven by buyers who were less sensitive to interest hikes.
The FNB House Price Index moved sideways in December, recording 3.5 percent from 3.4 percent in November, which suggested that house price growth averaged 4.2 percent in 2021, up from 2.5 percent in 2020.
“We expect house prices to average between 3 and 4 percent in 2022,” said Mkhwanazi.
Average time that properties spent on the market for sale shortened to 7 weeks and 6 days, from 8 weeks and 6 days in the previous quarter. The rating was similar across price segments, except for the affluent segment which recorded 8 weeks and 2 days.
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