Annual house price growth accelerates in February
The FNB HPI annual house price appreciation for February rose to 4.2% y/y, up from 3.9% in January. On a month-on-month basis, however, price growth continues to slow, likely reflecting the tapering of interest rate-induced demand. This is consistent with Estate Agents Survey data, which showed still strong but slowing buyer demand, mainly in the middle-priced segments of the market. Forward-looking indicators suggested slowing demand in 1Q21, with only 37% of surveyed agents expecting volumes to increase from 4Q20 levels. We continue to see bigger, mainly freestanding, properties gaining in popularity, with buyers responding to the demands of remote working
Outlook
Available data shows that lower-end prices remain relatively strong but are decelerating, in line with the initial impact on labour markets. We expect this "correction" to continue, as employment takes time to recover. However, the inherent stock shortages will likely keep property values afloat. Indeed, estate agents operating in affordable segments still see demand outstripping supply.
Much of the reflation in 2H20 was driven by middle segments, buoyed by low interest rates as well as demand for bigger spaces to facilitate remote work. Part of this was also driven by tenants switching from renting to owning. It is unlikely that there is much of this demand left in the tank - Stats SA data shows that 66 000 professionals lost jobs in 4Q20, which does not augur well for mortgage demand. Furthermore, as pressure in the rental market intensifies, we expect more stock to be released into the market for sale. A combination of these factors is expected have a dampening effect on activity and, eventually, price growth in the coming months.
Prices in the upper end have, over a prolonged period, adjusted lower, due to receding demand and rising incidents of selling due to emigration. Available data shows properties in the top 1% price distribution declined by an average -5.5% in 2020. For 2021 we expect less negative price growth, as owners delay their selling decisions due to unfavourable selling conditions and emigration trends lower (estate agents data shows these sales to have peaked in 2019).
Overall, property prices have been unusually slow to adjust to the evidently weak consumer fundamentals. In part, this is due to the nature of the crisis, which incentivised property ownership, as well as a concerted response from lenders that smoothed the impact on housing markets (see information box below).
Information Box 1: Residential property - Explaining the resistance.
