How the housing market will perform post-lockdown
One sector of the economy that stands to be greatly impacted by the Covid-19 pandemic is the housing market.
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There is a lot of uncertainty around how various sectors of the economy will perform once we fully emerge from the national lockdown and return to business as usual.
One sector of the economy that stands to be greatly impacted by the Covid-19 pandemic is the housing market.
While interest in the property market has been stimulated through interest rate cuts, affordability remains a key concern for buyers and sellers alike.
“In a recent meeting with our digital advertising partners, it was pointed out to us that the interest rate cuts have stimulated interest among buyers, as revealed by an increase in ‘buy a home’ search terms during this period.
“However, it is unlikely that this peak in interest will result in too many sales as few South Africans will be able to afford to make such a large investment at this time.
“Sadly, the earning potential of many has been either directly or indirectly impacted as a result of Covid-19.
“The cuts in interest rates are, therefore, only likely to help consumers keep up with their debt repayments rather than allow them to take on new debt,” explained Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
However, even though it is unlikely that we will see too great of an increase in qualified buyers as a result of these and any further interest rate cuts, Goslett explained that the housing market does still stand to benefit.
According to him, dropping interest rates allows struggling homeowners the opportunity to keep up with the instalments on their home loans.
This means that fewer homes will be forced onto the market which lowers the possibility for a housing market crash where supply far outweighs demand and property values plummet.
If we do reach a point where too many homes enter the market as a result of the shrinking economy and an inability to afford home loan repayments, the market will fall into a lull before correcting itself.
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“A flood of homes to the market will lead to downward pressure on asking prices.
“Eventually prices will drop to a point where buyers are incentivised to purchase again, which could lead to the market rectifying itself through a possible housing boom later down the line,” Goslett said.
“My prediction is that activity within the housing market is going to be slow at best once the lockdown ends and the Deeds Office and all subsidiary services re-open.
“It will take some time to process the transactions that were already in line and any new transactions will take longer to be processed and finalised as they await the re-opening of subsidiary services.
“This will also have an impact on the property market as a whole.”
In closing, Goslett advised sellers is to be patient and realistic about their asking price if they want to close a sale after the lockdown period.
“My advice to buyers is to enter the market as soon as they can if they can afford to do so, as interest rates are at a record low and house price growth is stagnant.
“For existing homeowners, I would recommend keeping the repayments on their home loan the same as they were before the interest rate cuts if they can afford to do so, as this will allow them to save greatly on interest costs and shorten their lending term.
“If they are still unable to afford their repayments even after the cuts, I advise that they speak to their lenders to explore their options,” Goslett said.
For more advice around homeownership visit www.remax.co.za.
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