Stable interest rates may lead to housing market boom
CAPE TOWN – The SA Reserve Bank’s Monetary Policy Committee (MPC) on Thursday announced that interest rates would remain stable, keeping the repo rate at 3.5 percent and the prime lending rate at 7 percent.
This was largely in line with economists expectations, although the panel was not unanimous in reaching this decision.
The question, however, was what effect the decision would have on property prices as some market watchers had touted the possibility of a property bubble.
Regional Director and chief executive of RE/MAX Southern Africa, Adrian Goslett said there was a possibility that there would be a slight increase of around 0.5 percentage points for 2021, but this should not have a great impact on the property market.
“As things stand, the low interest rates – in conjunction with other factors – have created a housing market boom, particularly within the first-time buyers’ market,” he said.
Interest rates are largely expected to remain low for the better part of 2021.
Goslett said the property market as a whole had made an unexpectedly fast recovery after months of inactivity during Alert Levels 5 and 4 of the national lockdown.
“As a region, our reported sales figures year-to-date for October is up by 3 percent from last year. This is following three months during hard lockdown (from April to June) where our sales figures dropped by as much as 62 percent year on year.
“A possible reason for the fast recovery we have seen is that many have had to adjust their living situations and lifestyles to suit the post-lockdown world. The low interest rates have also made it incredibly appealing for first-time buyers to enter the market,” he said.
BetterBond chief executive Carl Coetzee said not only was it the ideal time to apply for a bond – as the lower interest rates had made homes 30 percent more affordable – it was also a good opportunity for those with the financial means to pay more into their bond to reduce their overall repayment period.
Coetzee said as things stood the difference from 10 percent to 7 percent on a R1 million home meant a monthly repayment saving of about R1 900 and a staggering R455 000 over the 20-year bond term.
Goslett encouraged buyers, who could afford it, to enter the property market while interest rates were at this record-breaking low.
“While it is unlikely that interest rates will return to their previous levels of around 10 percent within the near future, I would still caution buyers to leave room in their budget for future interest rate hikes over the period of their lending term.
“I would also encourage them to make the most of the current market conditions before it changes into a seller’s market – which could happen within the months to come if activity continues to remain as high as it has been in the last three months,” he said.
Economists on Finder’s panel said mortgage applications and grants were at 10-year highs and with rates being so low some might wonder if there was a chance conditions would create a property bubble.
Only 14 percent of the economists on Finder’s panel thought low rates could create a property bubble, with 86 percent saying it’s not a concern.
On the topic of property, prices have recovered following a post-Covid-19 dip and economists believe that trend will continue into mid-2021, predicting that property prices will rise by an average of 3 percent.
Senior lecturer in banking and finance at University of the Free State Johan Coetzee was the most bullish, forecasting the national median property price would rise by 10 percent, whereas IQbusiness chief economist and head of research, Sifiso Skenjana, was the only panellist who thought prices would drop. He forecast a 5 percent decline.
“I think the property prices will stabilise as the economy continues to digest the medium-term impacts and will likely decline between 5 percent and 7 percent towards the end of 2021,” he said.
Matthew Kofi Ocran is expecting a modest increase of 2 percent. “Price growth will remain below inflation until economic growth recovers. Most probably in 2020,” he said.