Senior writer
The latest BetterBond Property Brief indicates that home loan activity is improving and that there are signs pointing to an imminent new growth phase for residential property.
- 4.2% – QOQ increase in home loan applications
- 6.9% – average home purchase price for first-time buyers
- 6.5% – YOY increase in the average home loan value in JHB NW
- 4.2% – increase in the ratio between average home prices and income for the 31 to 40-year age group.
Home loan applications
New home loan activity has started Q2 2024 on a modestly improved note, with a QOQ increase of 4.2% in the number of home loan applications submitted. The YOY increase was more muted at 1.2%, but nevertheless signals a measure of stability that has returned to the residential property market, following the steep decline in activity since the SA Reserve Bank embarked on a restrictive monetary policy stance at the end of 2021. Compared to Q2 2022, the number of new home loan applications was still down by 20%. Hopefully, the consistent decline in the consumer price index (CPI) will lead to lower interest rates in Q3 2024.
Average home purchase price
Signs have emerged that point to an imminent new growth phase in residential property market activity, with a return to real YOY increases in home prices. During April and May, average home purchase prices increased by 7.6% for all buyers, compared to Q2 2023 and by 6.9% for first-time buyers.
Inflation is currently just above 5%, which translates into a decent real price increase and provides evidence of an uptick in the demand for homes. The QOQ increase in average home prices for all buyers of 3.3% has been matched by the figure for first-time buyers and is double the average QOQ home price increase recorded over the past 17 quarters. A further recovery of the demand for residential property is on the cards when interest rates start declining again, possibly during the second half of the year.
Average deposit for home purchase
The relentless rise in the prime overdraft rate to just below 12% since the end of 2021 has predictably led to a sharp increase in the average value of deposits required for home purchases, both for first-time buyers and repeat buyers. As a direct result of the highest interest rate in 14 years, banks have been experiencing increases in credit impairments, which rose to more than R193 billion at the end of last year.
The increase in the average deposit on a home loan has been especially severe for first-time buyers, with the level of R253,000 recorded in May 2024 being 44% higher than a year ago. Any future lowering of interest rates is likely to eventually reverse the rising trend for the deposits required for home loans.
YoY real increase in average homebuyer incomes by age group
Over the past year, the age group between 41 and 50 years continued to outperform the other age groups in terms of real income growth. This age group traditionally possesses skills related to a combination of theoretical knowledge and practical experience that is always in demand, especially in an emerging market economy like South Africa.
All five age groups for which income data is captured by BetterBond managed to outperform the average real salary growth for the whole of the formal economy by a hefty margin. The latter is determined by Stats SA’s Quarterly Employment Survey (QES), which has witnessed a declining trend, due to the impact of the Covid pandemic and low economic growth.
Ratio of average home price to average annual income by age group
Between 2016 and the end of 2021, the ratio of home prices to buyers’ annual incomes continued to increase, but the Reserve Bank’s hawkish monetary policy reversed this trend, with the ratio declining to lower levels than 2016 for the income groups between 31 and 50 years of age.
Now that home prices are showing signs of growth in real terms (i.e., after adjustment for inflation), the trend has resumed upward momentum for all three age groups under 50. If this trend gains momentum, it will signal a shift towards higher levels of demand among potential homebuyers.
The fact that average home prices became cheaper relative to the incomes of homebuyers over the past two years can be regarded as a growth driver for residential property market activity, especially once interest rates have declined.
