The FNB HPI (House Price Index) annual house price appreciation decelerated further to 2.6% y/y for August, from 3.4% in July - revised up from 3.1%.
“Our proprietary market strength indicators show that demand is now moderating, after a strong rebound in the second half of 2020 and into 2021,” says FNB Senior Economist, Siphamandla Mkhwanazi.
“However, these are still above the levels experienced in 2019. This reflects the positive effect of lower interest rates on market activity and changes in housing needs resulting from the Covid-19 pandemic.”
- More people are working from home than ever before.
- The number of children now home-schooling is increasing.
- Higher mortgage amounts
Mkhwanazi says that mortgage extension continues to grow at a faster pace while loan-to-price ratios are trending lower.
The Property Barometer shows that mortgage extension in July rose by 7.2% year on year - the quickest in 12 years, since May 2009. This seems at odds with the demand and market activity indicators outlined above. Meanwhile, loan-to-value ratios – the proportion of a loan that lenders are willing to finance - have dropped from their recent highs in the fourth quarter of 2020.
“Our investigations show that much of this credit is funding property purchases in the middle- to upper-priced segments. This means that mortgage loan amounts have increased, which reflects a shift towards purchasing in higher price brackets,” says Mkhwanazi.
“The weaker-than-expected labour market data for the second quarter of this year, combined with the potential adverse effects of the recent unrest on employment prospects for the third quarter, suggest that longer-term demand fundamentals will most probably take longer to recover to pre-pandemic levels.
“However, we note a potential upside on non-wage income - particularly dividend income - which could boost income growth for affluent households.”