FNB: Housing market outlook brightens

The housing market in South Africa has been facing challenges due to high borrowing costs, leading to suppressed demand and stagnating house prices. However, there is a glimmer of hope on the horizon as inflation remains benign and an imminent rate cutting cycle is expected. Siphamandla Mkhwanazi, Senior Economist at FNB, shared insights on the current market conditions and the outlook for the housing market. He discussed the impact of inflation and interest rate cuts on the housing sector, highlighting the potential for improvement in certain segments sensitive to sentiment. While overall house prices have seen a slowdown, there are signs of resilience in some areas. Mkhwanazi emphasized the need for lower interest rates to stimulate demand and drive growth in the housing market. FNB has revised its inflation outlook downwards, anticipating closer alignment with the target rate of 3%. The expectation of multiple rate cuts by the Reserve Bank is seen as a positive step towards boosting economic activity and supporting the housing sector. Mkhwanazi projected two rate cuts by the end of the year, with a possibility of additional cuts in early 2022. These measures are expected to contribute to the structural improvement of interest rates, making them more favorable for borrowers in the long term. When addressing the mortgage market, Mkhwanazi highlighted the subdued demand reflected in a slowdown in mortgage extensions and low approval rates. Affordability challenges for households have impacted the lending landscape, with banks exercising caution in extending credit. Despite a decline in mortgage volumes, a gradual recovery is expected with the implementation of rate cuts. However, the pace of recovery may be tempered by the modest reduction in interest rates. In the rental market, landlords are facing difficulties in increasing rental prices amidst low demand. Rental inflation rates have remained subdued, indicating a challenging environment for property owners. Vacancy rates have slightly improved, but excess supply continues to weigh on the rental market. Tenants are benefiting from a range of options due to higher vacancy rates, leading to a competitive landscape for landlords. Overall, the housing market is poised for a potential turnaround with the prospect of lower interest rates and improved affordability. The combination of benign inflation and rate cuts offers hope for both buyers and sellers in the real estate sector.