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It’s been the surprise good-news story of the pandemic, but will the property market’s rebound withstand the third wave?

The pandemic which has affected so many sectors of the economy has lasted far longer than expected, but so too has the housing market’s rebound; fuelled by record-low interest rates and a shift in homeownership behaviour.

More people are buying homes than they did before the pandemic, notwithstanding the economic impact of lockdown restrictions on many households’ incomes. With the prime lending rate currently at 7% - the lowest it has been in 55 years - many more people can afford to buy a home.

Forecasts from the South African Reserve Bank (SARB) indicate that rates are only likely to increase gradually from 2022; meaning that there is still time to make the most of this significant shift in affordability.

In its July 2 Economics Weekly newsletter, FNB identifies two buyer activity surges in the past 19 months. The first, it argues, was the release of pent-up demand after lockdown restrictions were eased in June last year. By then, the interest rate had already dropped from the 10% it was in January to 7.25% by the end of May, and to a further 7% in July, making it possible for more buyers to afford a bond.

First-home buyers particularly made the most of improved affordability and lower bond repayments, accounting for 70% of BetterBond’s applications for the latter part of 2020.

FNB says the second surge witnessed during the first quarter of this year has been driven by repeat buyers with changing buying needs. There has been a shift in homeownership as more people are able to work from home, instead of an office.

Quality of life has become a key buyer consideration, with many seeking larger properties with gardens or access to lifestyle amenities.

Semigration patterns have also changed, as buyers opt to settle in areas usually considered holiday destinations.

Many of these repeat buyers apply for higher bonds, with a lower loan-to-value ratio. While much of last year’s buyer activity was at the lower end of the market, BetterBond’s recent application data suggests that buyers in the middle to upper price segments are seeing the value of applying for a bond when the interest rate is so favourable.

There has been a 38% increase in approved bonds for homes between R2.5 million and R3 million for June year-to-date, and a 39% increase in bonds for homes of more than R3 million.

Renewed lockdown restrictions in response to the third wave are inevitably sending shockwaves through the economy, yet the housing market continues to show resilience. FNB concedes that while the demand for property is moderating, it is still above pre-pandemic levels.

We believe that the record-low interest rates, as well as the forecast that they will remain well below 10% for a good few months yet, bodes well for the property market. House prices, always a good indicator of the state of the market, look set to increase by an average of almost 3% over the next six months, says the SARB Repo Rate Forecast. The latest Lightstone report (June) puts the annual house price inflation, as of May 2021, at 4.9%, with price growth increasing across all provinces.

Also encouraging is that the time properties are staying on the market remains at about eight weeks, way better than the long-term average of 13 weeks.

The Monetary Policy Committee (MPC) has maintained an accommodative approach to economic recovery by agreeing at four consecutive meetings to hold the repo rate steady at 3.5%. Recent polls suggest that the next meeting on 22 July will yield the same outcome.

But, even if the repo rate does increase nominally this month or even by the end of the year, the prime lending rate will still be well below the 10% it was in January last year, before the start of the pandemic. The pace at which the economy will recover hinges on many factors, including the pace of the vaccine rollout. But, for now, all indications point to sustained favourable lending conditions that augur well for the housing market.

While we are mindful that interest rates will not remain this low indefinitely, it’s important that aspirant home owners understand the significance of the current lending environment so that they can make an informed decision about their long-term investments.

There still has never been a better time to apply for a bond. The pace at which the economy will recover hinges on many factors, including the pace of the vaccine rollout. Also, recent events in Gauteng and KwaZulu-Natal are likely to impact on consumer sentiment and affect household income for many whose businesses have been destroyed.

The medium-term implications of the unrest are yet to be quantified and already the rand has weakened against major currencies in response to the upheaval.

Fortunately, a year of single-digit interest rates has gone a long way to consolidating the housing market. While we are mindful that interest rates will not remain this low indefinitely, it’s important that aspirant home owners understand the significance of the current lending environment so that they can make an informed decision about their long-term investments.

There still has never been a better time to apply for a bond.

This article was first published by IOL on the 28 July 2021. 

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