Sustained Buyer Activity Expected in 2022

While expected, the Monetary Policy Committee’s decision at the end of September to keep the repurchase (repo) rate unchanged at 3.5% is a welcome relief to cash-strapped consumers in debt or servicing home loans. The prime lending rate of commercial banks remains at a five-decade low of 7%.

The repo rate is set by the Reserve Bank’s Monetary Policy Committee and is the interest rate at which it lends money to the country’s commercial banks.  Rate cuts and hikes affect the rate at which commercial banks lend to their customers.  For example, an increase in the repo rate translates to an increase in banks’ lending rates, driving up the cost of borrowing.  

Despite risks of elevated inflation, SA Reserve Bank governor, Lesetja Kganyago, announced that the unanimous decision to keep the repo rate unchanged for the fifth consecutive time is the SARB’s contribution to the country’s recovery, as consumers continue to struggle with the economic fallout of the Covid-19 pandemic.

Amidst a constrained economy and recent civil unrest, the bank has revised its GDP growth forecast upward for this year.  Says Kganyago:  “We expect the economy to grow by an upwardly revised 5.3% this year [from 4.2%), despite the much larger negative effect on output than was previously estimated from the July unrest.”

According to the SARB Repo Rate Forecast Report by Finder.com, more than 60% of Finder panellists cited poor employment recovery, contained inflation expectations, the recent civil unrest, and accommodative US monetary policy as major contributors for the stay on repo rate increases this year.  The MPC adjusts the repo rate to keep inflation within its 3% to 6% target range.

Driven by elevated vehicle and fuel prices and constrained economic activity, the consumer price index (CPI) rose to 4.9% in August - the fourth consecutive month that the annual increase is higher than the midpoint of the Reserve Bank’s monetary policy target range (StatsSA).  Notwithstanding, Kganyago assured that risks to the short-term inflation outlook had been assessed upward, and that inflation expectations will remain contained in South Africa.  Executive Chief Economist at Alexander Forbes, Isaah Mhlanga, agreed with Kganyago’s outlook, stating: "Oil prices were a big contributor to the recent rise in inflation; however, the outlook shows that oil prices will not continue to rise. The US [Federal Reserve] is also not in a rush to withdraw monetary policy support, thus there is still room to keep policy support."

Finder panellist and EFConsult Chief Economist, Frank Blackmore, holds the same view, emphasising:

“Until real sustainable inflationary forces present themselves, policy rates should be on hold”.

What Does this mean for the Property Market?

The MPC’s decision to leave the repo rate unchanged at its lowest level since it was introduced in 1998 will continue to stimulate buyer activity, which bodes well for the property market and the overall economic recovery effort, as well as investor and consumer confidence.  The favourable buying environment has enabled South Africans to purchase property at a rate unprecedented pre-pandemic, when many expected the market to spiral downwards.

More than 50% of the Finder’s panellists [as reported in the SARB Repo Rate Forecast Report] believe that the frenzied buyer activity experienced in the last 18 months will see sustained activity well into 2022, even as buyer sentiment moderates.  Property is still more accessible to first-time buyers and homeowners looking to upsize than it has been in recent years – largely due to banks’ increased lending appetite, the record-low interest rate environment, modest inflation, and property prices offering excellent value for market entrants.

Recent findings reported in FNB’s Property Barometer for September support this sentiment, with the size of home loans reflecting a shift towards higher price brackets - evidenced in the greater number of purchases funded in the middle- to upper-priced segments.  Likewise, Ooba’s second quarter oobarometer statistics for 2021 record a notable increase in the average purchase price year-on-year.

According to Rhys Dyer, CEO of ooba: “The residential property market continues to surprise with double-digit growth in prices of new home sales” when compared with the same period in 2020.   While almost 50% of home loan applications belong to first-time buyers, the percentage of existing homeowners applying for home loans (for their own occupation and not investment purposes) has seen positive growth, indicating that households are taking advantage of lower home loan repayments ‘to upgrade to bigger, more secure or more flexible work-from-home residential properties’ that comfortably accommodate families spending more time at home.  The increase in the size of home loans indicates that aspirant homeowners are in a position to prioritise quality of life.

While the oobarometer statistics shows a slight tempering in the number of home loan applications received from first-time homebuyers since the third quarter of 2020, Dyer believes that: “The appetite of the major banks to offer low or no deposit loans at high loan-to-value ratios and reduced repayment instalments has created an ideal buying environment, particularly for first-time homebuyers.”  The low interest rate environment continues to make owning property an affordable and accessible option to first-time buyers.

The reality is: the current rate environment, rising inflationary pressure and sluggish economic recovery have negatively impacted house prices.  Monetary Policy will begin to raise interest rates in the coming year to offset rising inflationary pressures - increasing the cost of servicing debt and dampening buyer demand and affordability.  The bottom line?  Now is a good time to buy property – whether you’re a first-time buyer or an existing homeowner looking to buy bigger.

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