Editor
The September BetterBond Property Brief brings welcome news: home loan applications increased 6.5% quarter-on-quarter, and house prices remained positive at 6.4% for all buyers and 7.7% for first-time buyers. The most positive news comes from the widely held belief that it’s not a matter of whether the MPC will cut rates but by how much – a cut which is certain to boost the property market.
The month in numbers
- 6.5% – QOQ increase in home loan applications
- 38% – increase in average home prices since Q3’2019 (pre-Covid)
- -14% – YOY decline in the value of residential building plans passed in SA
- 15% – YOY increase in loans for homes valued at more than R3 million
BetterBond index of home loan applications
The consolidation of home loan activity that commenced at the beginning of the year has subsequently gained some traction, with a 3.5% YOY increase in the number of home loan applications during July and August (on average). The QOQ increase in home loan applications is even more impressive, at 6.5%.
A combination of positive economic growth in Q2 2024 (albeit marginal) and expectations of higher growth under the new Government of National Unity (GNU) may have contributed to the upward trend in home loan applications that kicked in during Q1.
Prospective homeowners may also have taken note of the consistent decline in the consumer price index, which is bound to lead to lower interest rates during the rest of the year. It is encouraging that the BetterBond index of home loan applications is currently on par with the level achieved five years ago, despite the negative impact of the Covid pandemic and the highest interest rates in 14 years.
Average home purchase price
During July and August, home prices took a slight knock compared to Q2 2024, but the YOY movement remained positive at 6.4% for all buyers and 7.7% for first-time buyers, both of which are above YOY inflation. Compared to Q3 2019 (pre-COVID), average home prices for all buyers increased by 38%.
The imminent relaxation of monetary policy (which should occur in September) is likely to lift average home prices to new record levels, especially in the metropolitan areas. Several financial institutions and economic research agencies have recently lifted their growth forecasts for 2025, which bodes well for the recovery of the residential property market.
Average deposit for home purchase
The first two months of the third quarter witnessed a welcome halt to the relentless increase in deposits required for access to home loans, with a QOQ decline of 1.1% for all buyers and a 5% decline for first-time buyers, on average.
Compared to Q3 2019, the average deposit required for home loans by first-time buyers increased by a whopping 139% to a current level of R195,000. Drawdowns under the new two-pot retirement fund system and lower interest rates will undoubtedly lead to less nervousness among lending institutions about prospective homebuyers’ financial dispositions, which should soon start reversing the upward trend in the deposits required for home purchases.
YOY % change in approved loans by home price bracket (12 months to Aug 2024)
The damage inflicted on the residential property market by high interest rates remains evident in the two lowest home price brackets, namely below R500k and between R500k and R1 million.
During the 12 months to the end of August, the number of approved home loans in these two categories declined by more than 2% and 7.5%, respectively, reflecting the affordability challenges being faced by lower-income earners.
In contrast, the number of home loans for higher-priced homes has continued to increase, with an impressive 15% year-over-year increase for homes valued at more than R3 million. Furthermore, it is encouraging to note that the total number of home loans granted in July and August 2024 was 5% higher than for the same two months last year.
Loan approval ratio by region (12 months to Aug 2022 & 2024)
For the 12 months ending August 2024, the average loan approval ratio stood at 60.8%—virtually the same level two years ago. This is another welcome indication of a bottoming out of activity in the residential property market.
The Greater Pretoria region took the lead, with an approval ratio of just below 70%, followed by the Western Cape at 67% and Mpumalanga at 63.9%.
The Free State and Northen Cape only managed an approval rate of 54%, with only four regions increasing their home loan approval ratios over the past two years. With inflation down to 4.6%, lower interest rates should be just around the corner, which may pave the way for improvements in loan approval rates during the second half of the year.
Lower interest rates around the corner
Last week, Dr Roelof Botha shared insights regarding the repo rate. In the September BetterBond Property Brief, he shares the latest economic developments supporting a repo rate cut.
August turned out to be a bumper month for good news on the economic front. From a residential property market perspective, the most important development was the further decline in the consumer price index (CPI) to 4.6% – just above the mid-point of the Reserve Bank’s target range, which is exceptionally good news for debt-laden households. Fortunately, the producer price index (PPI), a leading indicator of consumer prices, is at an even lower level than the CPI, namely 4.2%. The CPI has now been comfortably within the target range of 3% to 6% for 14 successive months, signalling the strong likelihood of an interest rate cut in September.
In fact, the debate is now shifting from whether the repo rate will be cut to the scope of the reduction. A cut of 50 basis points has become a reality, especially against the backdrop of low economic growth, rising unemployment, and households facing the highest ratio of debt costs to disposable income in 15 years (9.2%).
Underpinning the optimism over sizeable rate cuts over the next 12 months is the sharp decline in South Africa’s 10-year bond yield. Since the end of April, the country’s benchmark long-term interest rate has dropped by almost 200 basis points – suggesting that the Reserve Bank’s Monetary Policy Committee has been caught napping due to the positive long-term correlation between lending rates and bond yields.
