Homeowners with mortgages will breathe a sigh of relief at the news that the SA Reserve Bank’s Monetary Policy Committee has kept the repurchasing rate unchanged at 7% per annum following two rate hikes earlier this year.
The MPC felt that despite poor economic sentiment a pause in the hiking cycle would not adversely affect the recovery and growth of the economy. Industry professionals agreed that the decision was reasonable from a market-stability standpoint, and that a rate hike was not necessary at this point. This said, inflation has recently seen a slight upward trend due to continued pressure and is expected to accelerate further along in the year, potentially forcing the MPC’s hand in an attempt to control inflation. Consumers should continue to be cautious and mindful in their spending with the expectation of rate hikes towards the end of the year.
For now at least, the decision to retain the repo rate at 7% is a welcome relief. Not surprisingly it bolstered the property market after a constrained first quarter, giving consumers some breathing room; especially those already experiencing financial strain due to rising costs like electricity and food.
Affordability is already a major concern for many aspirant home-buyers. ooba’s property statistics reflect a decline in the number of home loan applications submitted in 2016 and more significantly, a decrease in the number of applications approved. The fact that less buyers are qualifying is a telltale sign of the growing financial pressures SA consumers are faced with amidst the escalating cost of lending.
Sluggish economic growth, rising inflationary pressure and high interest rates have weakened consumer confidence to lower than it’s been in years. Property price growth has fallen below consumer price inflation and is expected to slow during the remainder of the year. SARB governor, Lesetja Kganyago, predicted a 0% growth rate in 2016.
How does this affect the Property Market?
Although a slight drop in property demand was noted in the first quarter of this year, stock shortages are prevalent in sought after suburbs across Johannesburg, especially those situated close to popular business/transport nodes. Affordability-concerns has increased the demand for smaller sectional title property as sellers seek to downscale or buy below the R1.5mil mark. This growing demand is boosted by the convenience, security and lifestyle benefits a sectional title property has to offer. There has been a noticeable shift towards community-centred, security-conscious living in recent years.
With the number of qualified buyers diminishing and the cost of lending increasing, sellers may have to be more competitive in their pricing to ensure a timeous sales transaction. Economists have encouraged consumers to not over-indulge and instead adopt healthy payment habits that will cushion the expected interest rate hikes.