CAPE TOWN - The Covid-19 lockdown and recessionary environment was likely to have a dramatic effect on house sales volumes, but not prices, with house price growth likely to slow in the middle-price market, but experience a deeper cut in the upper end.
This was according to FNB’s latest Property Barometer released yesterday, which assessed the impact of the national lockdown on the housing market by looking at available data, and drawing from experiences in previous recessions and the latest on Covid-19 in China.
FNB property analyst Siphamandla Mkhwanazi said the weakening trends had pre-existed and the virus outbreak would amplify those weakness.
The outbreak had driven sudden changes in behaviour among home buyers and sellers, with anecdotal evidence suggesting some sellers had taken homes off the market, while from a buyer perspective, restrictions on human movement and “avoidance behaviour” had reduced the number of buyer enquiries. “This will, undoubtedly, result in a sharp drop in transaction volumes, as buyers delay their purchasing decisions until the uncertainty lifts,” said Mkhwanazi.
A combination of much lower gross domestic product in 2020, which FNB forecast at -4.5percent and rising unemployment to around 31percent in 2020, from 29.1percent in 2019, was likely to weigh on demand (and possibly supply) for mortgages and ultimately house prices, he said. However, there were factors unique to the current situation, such as a considerable and far-reaching policy response to the Covid-19 shock that might also affect the outcome on the house market, he said. Business and consumer confidence were expected to take a hit from already depressed levels. While aggressive cuts in interest rates would assist, this would likely be outweighed by the uncertainty, which should see prospective buyers delaying buying decisions, he said. With lower demand, and some segments excessively supplied, the supply of new residential units was likely to adjust lower, exacerbated by the Covid-19 crisis.
Supply chain disruptions, in raw materials and on human movement, could also lead to delays in building starts and completions.