BetterBond
The latest BetterBond Property Brief is full of good news, except for deposits. It shows that, compared to Q4 of 2023, home loan applications jumped by 30%, while the quarter-on-quarter increase was also impressive at 18%. Notably, the BetterBond index was 11% stronger in October than Q4 of 2019, just before the COVID-19 pandemic.
The month in numbers
- 30% YOY increase in the number of home loan applications
- 4.1% – YOY increase in average home purchase price for first-time buyers
- 39% – Nominal increase in average home prices since Q3 2019
- R18.6 billion – Value of residential buildings completed Jan to Aug 2024
BetterBond index of home loan applications
Since the start of a restrictive monetary policy stance at the end of 2021, the first interest rate cut may have managed to cement a recovery in residential property market activity. Following a declining trend in the number of home loan applications that lasted for 13 quarters, the BetterBond index of home loan applications started a marginal recovery at the beginning of 2024, which gained some traction in October.
Compared to Q4 of 2023, home loan applications jumped by 30%, while the QOQ increase was also impressive at 18%. Notably, the BetterBond index was 11% stronger in October than in Q4 of 2019, just before the Covid pandemic. With the consumer price index (CPI) and the producer price index (PPI) declining sharply during 2024, further interest rate cuts are more or less guaranteed, with several economists predicting a drop of 50 basis points at the next rate announcement.
Average home purchase price
The recent decline of 25 basis points in the prime overdraft rate was sufficient to reverse the marginal downward trend in average house prices during Q3 of 2024. Over the past five years, house prices have been exposed to a highly volatile trend, firstly because of the Covid pandemic, which prompted a substantial lowering of the Reserve Bank’s repo rate (and, as an inference, also the prime overdraft rate) and thereafter due to the relentless increase in the prime rate.
Although October’s QOQ increase in average house prices was marginal, the YOY recovery was quite solid, with an increase of 4.1% for first-time buyers (FTBs) and 3.3% for all buyers. Compared to Q3 of 2019 (pre-Covid), houses are now 39% more expensive, on average. In nominal terms, the average annual rate of house price increases is 5.9%. With consumer inflation at 3.8%, there is a strong likelihood that house prices will start increasing in real terms.
Average deposit for home purchase
The welcome lowering of the deposits required for access to home loans that occurred during Q3 came to an abrupt halt in October, with a new record high of R208,000 for FTBs. Apart from the prevailing mortgage lending rate, these deposits are crucially important to the level of activity in the residential property market and any increase in deposits leads to the exclusion of some prospective homebuyers. For all buyers, the QOQ decline of 3.8% recorded in Q3 has been reversed into a 4.7% increase.
The plight of prospective FTBs is even worse, with a 13% QOQ increase in the average required value of deposits. Since the onset of the relentless rate hiking cycle at the end of 2021, the average deposit required for FTBs has more than doubled, while it has increased by 68% for all buyers. With credit impairments by the banking sector having risen by 19% over the past two years, it seems that substantial interest rate declines would be required before the rising trend in home loan deposits can reach a turning point.
FTBs’ share of home loans granted: 12 months to October 2024
In contrast to data on the value of new residential buildings completed in the different provinces, a more buoyant level of property market activity exists outside of regions with large metros, especially for FTBs. The two regions with the highest share of home loans granted to FTBs are the North West and the combined region of Free State and the Northern Cape.
This trend is associated with more affordability in regions that do not possess large metros with propulsive industrial and commercial sectors (such as the Western Cape, Greater Pretoria and Johannesburg. The North West is on top of this list, with FTBs enjoying a 67% share of loans granted, followed closely by the Free State and the Northern Cape.
In Mpumalanga, the share of FTB loans granted has been the lowest over the past 12 months, namely 51%During the past 12 months, the Western Cape maintained its number one position as the region with the highest home loan value, but a change has occurred for the silver medal position, namely an ousting of the Greater Pretoria region by Johannesburg’s North-Western suburbs. South Africa’s administrative capital is now in third position.
Mpumalanga retains position number four, having recently overtaken KwaZulu-Natal and also opening up a larger gap in terms of the average home loan value. Except for KwaZulu-Natal and North West, all the regions increased their average home loan values marginally.
Altron FinTech Household Resilience Index: Q2 2024
The results of the most recent Altron FinTech Household Resilience Index (AFHRI) were released in October, confirming the continued financial pressure on South African households, mainly due to the high interest rates over the past two years.
Fortunately, the AFHRI recovered marginally in Q2, mainly on the back of increased private sector employment and higher levels of labour remuneration in the private sector (in real terms). With interest rates on their way down and the government of national unity engaged in much closer cooperation with the private sector, the financial disposition of households should improve further during the rest of the year.
Read the full report here
