Bryanston, a northern suburb of Johannesburg. Picture: SUNDAY TIMES
Bryanston, a northern suburb of Johannesburg. Picture: SUNDAY TIMES

Planning to sell your home to cash in on the mini-boom in housing sales and prices? 

Better do it sooner rather than later, since it looks like SA’s property market — which entered an unexpected bull run in the second half of 2020 — is losing steam.  

FNB reported this week that after 11 months of successive gains, house price increases slowed for the first time in May. Last month’s average 4.1% growth came in below April’s 4.6%, which was the highest price appreciation recorded by FNB’s housing index since February 2017. 

Granted, last month’s inflation-beating 4.1% is not too shabby, considering that pre-Covid house price increases topped out at between 2.5% and 3.5%. 

Still, it’s not only a slowdown in price growth that’s pointing to rapidly deflating homebuyer enthusiasm.

According to FNB’s latest Property Barometer, there has been a drop in mortgage application volumes over the past two months too.

In addition, the demand strength index, which reached record highs earlier this year, has made an abrupt U-turn in the past three months, suggesting that the shortage of housing stock for sale that developed in some areas last year was short-lived. 

The index uses FNB’s own property valuers database to track housing demand relative to supply. FNB senior economist Siphamandla Mkhwanazi says that with both the mortgage and demand strength indicators declining over the past two months, housing demand may well have peaked. 

That’s hardly surprising. Last year’s three percentage point interest rate cuts, taking rates to near 50-year lows, understandably provided a colossal underpin for housing demand. But it would have been unrealistic to expect the rally to continue indefinitely, given SA’s depressing labour market stats. 

As Mkhwanazi points out, there were 1.4-million fewer South Africans with jobs in the early months of 2021 compared to the same time last year. And that is despite the employment gains made in the second half of 2020, and the better-than-expected 4.6% GDP growth recorded in the first three months of this year.

Of course, the third wave of Covid infections that has hit SA, delays in the rollout of vaccinations and load-shedding have further dampened buyer enthusiasm. 

PayProp’s latest rental report (read it here) also suggests that the pent-up demand, especially among first-time buyers, may have already worked itself out of the system. The rental processing firm reported its first gain in rental growth in almost two years in the first quarter of this year. Sure, it was only a marginal 0.5% increase, but the first quarter’s recovery follows five consecutive quarters of steady decreases in rentals across SA.  

Given that last year’s pressure on rentals was partly ascribed to the fact that thousands of people stopped renting and instead became first-time homeowners (thanks to cheaper mortgage finance), it seems reasonable to assume that one of the factors supporting the recent recovery in rentals could be a reversal in that trend. Or, at least, it’s an indication that most tenants who were planning to buy instead of rent may have already taken the leap.

Overseas, however, the soaring sentiment which has been evident in many other housing markets since mid-2020 has yet to wane.  In fact, Liam Bailey, global research head at real estate group Knight Frank, says there’s hardly been a better time to sell your house, both in the UK and US.

Bailey points to the latest Halifax numbers, which show that UK house prices climbed 9.1% in the 12 months to May — the strongest growth rate recorded in seven years. 

Halifax MD Russell Galley ascribes the buoyancy in the UK to pandemic-induced changes in buyer preferences, as people gravitate towards more spacious properties. He reckons the trend towards larger homes has prompted an increased willingness among UK buyers to spend a higher proportion of their income on housing.

As in SA, house price growth in the UK is also being fuelled by low borrowing costs, as well as a growing shortage of homes for sale and stamp duty holidays. 

Data published by the Bank of England this week showed that average mortgage rates for borrowers (who are putting down deposits of at least 40%) dropped to 1.2% in May — the lowest on record.

In the US, where the market is being driven by almost identical themes, the lack of housing stock is also leading to ever-higher prices. 

According to this Reuters report, US house prices have escalated to such an extent that homebuyer sentiment has soured to record lows. US house prices were up a hefty 15.2% in May year on year, according to Realtor.com

That article refers to a survey by home financing giant Fannie Mae, which reveals the growing concern that Americans are being priced out of the US housing market. In May, the percentage of consumers who said it is a good time to buy a home declined to 35%, the lowest level since Fannie Mae began its home purchase sentiment index about a decade ago.

Australia has also seen a strong rebound in house prices. That country’s ANZ Bank predicts that house prices will rise by as much as 17% this year. 

While the housing upswing in the UK, US and Australia may well be boosting homeowner returns, it does raise fears of a repeat of 2007/2008 when economies around the world came crashing down on the back of overheated housing markets.

That’s a scenario that will hopefully be averted this time; the world can hardly afford another housing crisis as it starts to emerge from its Covid-induced recession.

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