The FNB Property Barometer for September 2024 has brought a renewed sense of optimism for homeowners in Port Elizabeth and across South Africa. In the latest release, FNB economists Siphamandla Mkhwanazi and Koketso Mano shared promising insights that have captured the attention of property owners, potential buyers, and real estate professionals. The report highlights several economic factors, particularly the downward revision of inflation expectations, largely fueled by a stronger rand and improved global sentiment. This positive trend is expected to result in interest rate cuts sooner than previously anticipated, a significant development that will likely affect the housing market in 2024 and beyond.
FNB Predicts Early Interest Rate Cuts
A key takeaway from the FNB Property Barometer is the forecast of two 25 basis point repo rate cuts by the end of this year, followed by an additional cut in early 2025. These anticipated cuts are critical as they mark the first reduction in interest rates since the Monetary Policy Committee (MPC) initiated a hiking cycle back in 2021. Over the past few years, the MPC has increased interest rates by a cumulative 475 basis points, pushing the repo rate to its highest level in 15 years, currently standing at 8.25%.
The efforts to tame inflation have shown results, with the latest Consumer Price Index (CPI) print indicating a steady inflation rate of 4.6%, which falls comfortably within the South African Reserve Bank (SARB) target range of 3% to 6%. This achievement paves the way for more favorable monetary policy, which could stimulate the housing market, increasing affordability for potential buyers while encouraging house price growth.
Economic and Global Factors Drive Positive Sentiment
According to economists, several global and domestic factors contribute to the revised outlook. The strengthening of the rand, coupled with improved sentiment in the global markets, has allowed for the possibility of interest rate cuts. Additionally, easing political uncertainty within the country has played a significant role in boosting confidence in South Africa’s economic future.
However, Mkhwanazi and Mano also warn of potential risks that could derail these projections. For example, any sharper-than-expected drops in inflation or unexpected actions by the U.S. Federal Reserve could affect South Africa’s economic trajectory. Nevertheless, the current climate remains optimistic, especially with FNB’s revised GDP growth forecast, which points to further improvements in the broader economy.
A Brighter Future for the Housing Market
The potential for rate cuts brings a positive outlook for the housing market, especially in Port Elizabeth. Lower interest rates will improve affordability for homebuyers, stimulating demand and potentially driving house price growth. The report states that FNB has revised its house price growth forecast for 2026 upward, from 3.3% to 3.6%, reflecting the bank’s belief that the market will gain momentum in the coming years.
Currently, the FNB House Price Index (HPI) shows year-on-year growth of 0.6% in August 2024, which is unchanged from the previous month. This modest growth is a reflection of the high cost of credit and reduced disposable incomes, both of which have dampened demand. However, with interest rates expected to decline, there is an opportunity for the housing market to stabilize and begin trending upwards once more.
Mortgage Market Shows Limited Growth
The mortgage market has also seen some changes, though growth has been relatively limited. The growth in mortgage extensions slowed to 2.5% in July, down slightly from 2.7% in June, indicating subdued demand in the market. The strict lending criteria in place have also contributed to the slower pace of growth, as affordability challenges persist among potential homebuyers.
Although loan-to-price (LTP) ratios have stabilized, the volume of mortgages issued remains lower than in previous years. Year-to-date data shows that LTP has averaged 94.5%, just slightly below the 94.7% seen during the same period in 2023. However, mortgage volumes have declined by 12% over the same period, reflecting the difficulties that many buyers are facing due to high interest rates and stringent approval processes.
Despite these challenges, FNB’s economists are optimistic that the market will rebound as interest rates begin to fall. Lower borrowing costs, combined with improved economic conditions, will likely lead to increased activity in the housing market, especially as demand begins to recover.
Economic Adjustments Signal Hope for Recovery
In addition to the possibility of interest rate cuts, several other economic adjustments offer hope for a gradual recovery in the housing market. For example, FNB has increased its GDP growth forecast, which is a positive indicator for the broader economy. The easing of energy constraints, lower inflation, and a more optimistic outlook on market sentiment all contribute to this upward revision.
Moreover, changes in assumptions surrounding the two-pot pension system in South Africa could further boost market conditions. These adjustments suggest that economic activity will improve, which in turn will support house price growth and demand in the housing market.
Potential Risks to Consider
While the outlook is largely positive, it is important to acknowledge potential risks that could impact the housing market and broader economy. Any unexpected shifts in the Federal Reserve’s monetary policy or faster-than-expected declines in inflation could lead to adjustments in the predicted rate-cutting cycle. Additionally, external factors such as global market instability or sudden economic shocks could alter the trajectory of the South African housing market.
Nonetheless, the economists at FNB maintain that the current trends are favorable and that the market is positioned for a recovery. With a more benign inflation environment and an impending interest rate-cutting cycle, homeowners in Port Elizabeth and across South Africa can expect better affordability and greater stability in the housing market in the coming years.
The latest FNB Property Barometer for September 2024 paints a positive picture for the future of the South African housing market, particularly in Port Elizabeth. With inflation under control and the prospect of interest rate cuts on the horizon, there is renewed hope for a gradual recovery in house prices and buying activity. Although challenges remain, including high credit costs and affordability concerns, the forecast for improved economic conditions and lower interest rates suggests a more stable and optimistic future for homeowners and potential buyers.
