Stable repo rate a boost for home buyers

Having seen the Reserve Bank raise the repo rate by a total of 475 basis points between November 2021 and May 2023 – taking it to 8.25%, and with the current prime lending rate at 11.75%, the latest announcement that the interest rate remains stable provides a welcome boost for home buyers and those with mortgage debt, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

Inflation conditions and future expectations

“During the above period, the consumer inflation rate has declined from a peak of 7.8% in July 2022 to 4.7% in July 2023 – marginally above the mid-point of the inflation target, and although inching slightly higher in August to 4.8%, it remains well within the inflation target range of 3-6%,” says Dr Golding.

“With a recent Reuters poll revealing that 29 or the 30 economists surveyed predicted no change to interest rates this week, the poll also disclosed that the same economists are forecasting 75 basis points of cuts during the course of next year (2024), which would take the prime rate back to 11% by year-end.

“While the SARB governor continues to signal that the Reserve Bank is ready to hike rates further, if necessary, it seems likely that with inflation expected to remain within the inflation target during the remainder of the year (2023) and during the course of next year, the bank has sufficient scope to leave rates unchanged and that the interest rate cycle has therefore peaked.”

“It is widely acknowledged, however, that there are challenges to the inflation outlook, from a higher oil price, weaker rand, and the prospect of rebounding food prices – as a result of the El Niño effect and rising temperatures across the globe. And, of course, loadshedding remains a threat to local price pressures, as businesses are forced to burn more diesel as an alternative energy supply at a time of rebounding energy prices.”

“Given the ongoing upside risks to the inflation outlook, the bank may well not hike rates further but rather err on the side of caution by keeping interest rates higher for longer – in other words, cut interest rates later than some economists are expecting. Ultimately, however, the timing of interest rate cuts next year will likely be determined by future economic and political developments both locally and internationally.”

“We continue to take a positive view on the residential property market, and we are beginning to see the first encouraging, albeit modest, signs of an expected upturn in the market, particularly as we head into spring.”

“Aside from extremely buoyant sales activity in our Boland and Overberg regions, which continue to benefit from ongoing semigration trends – coupled with the exceptional lifestyle and ongoing steady activity in the Western Cape and KwaZulu-Natal, we are noting increasingly more favourable indicators in Gauteng, with purchasers taking a view on the value for money on offer and deciding that now is the time to buy – including in the luxury market. This is aside from solid sales transactions concluded in other regions around the country.”

Rise in average age of bond applicants

“An interesting statistic noted in our latest Pam Golding Residential Property Index is the fact that the average age of bond applicants rose to a record high of 40 years in August 2023, which may be partly underpinned by a growing demand for investment or buy-to-let properties, which rose to 10.4% of total bond applications received by ooba last month.”

“Also, according to the Index, the rebound in national house price inflation remains intact, rising from a cyclical low of 3.6% in January 2023 to 4.0% last month (August). House price growth in Gauteng of +2.9% is gathering momentum, lifting the national average to 4.0% last month, while growth in prices continues to slow in both the Western Cape (+4.7%) and KwaZulu-Natal (+2.0%). Notably, in the lower price band, below R1 million, house price inflation continues to gather momentum, rising to +8.2% in August,” concluded Dr Golding.

Writer: Pam Golding Properties