South Africans who have been hesitating to buy a new home due to high interest rates may finally be able to take the plunge.
"For the first time since April 2022, the Consumer Price Index (CPI) has fallen back within the Reserve Bank’s target band of between 3-6 percent," says Renier Kriek, Managing Director at Sentinel Homes.
According to Kriek, a lower CPI indicates that inflation has potentially peaked. This will likely mean stabilization of the market interest rates and a repo rate reduction could even be on the way.
Signs that inflation is falling
Since the disruption to world economies caused by COVID-19, several factors subsequently contributed to high global inflation, from which South Africa was not spared.
Inflation often occurs because the difference between consumer demand for items and producers' ability to supply them causes their prices to increase too sharply to remain affordable. It may also result from a drop in the relative purchasing value of money due to various economic factors. Inflation in South Africa is measured through the Consumer Price Index (CPI) compiled by Stats SA.
The South African Reserve Bank (SARB) follows a policy of keeping any changes in the CPI within a range of 3 to 6 percent year-on-year, preferring to keep it anchored at 5 percent.
Even before local CPI breached 6 percent earlier last year, SARB moved to reign in inflation with 10 consecutive increases in the repo rate, to the current level of 8.25 percent.
Interest rates consumers are charged on their debt, such as the prime rate, are linked to the repo rate. This means that rises in the repo rate makes repayments on debts like home, car and personal loans more expensive, forcing consumers to curb non-essential purchases and bringing rampant price increases down.
However, on 21 July 2023, the SARB's Monetary Policy Committee announced the repo rate would stay unchanged at 8.25 percent, saying it remains cautious. The main reason a further increase was avoided is the drop in the CPI from almost 7 percent in April to only 5.4 percent in July. The July CPI was even lower than what economists predicted.
"For consumers, this means that, barring unforeseen increases in inflation, the repo rate will remain steady and might even be reduced in September, when the Committee meets again," says Kriek.
Are there homes to buy?
The South African economy created 1.2 million new jobs between the first quarter of 2022 and the first quarter of 2023, despite challenges like inflation, loadshedding and poor service delivery. If the repo rate drops as expected, this will put even more money in people's pockets and boost economic activity.
In short, things are looking up for South Africans, especially those with their hearts set on buying a home.
Although estate agents report a shortage of stock from resilient homeowners desperate to keep their properties, home loan debtors are clearly facing heavy stress from current high interest rates.
The National Credit Regulator reports that while the number of mortgages not in arrears are usually around 91 percent of total home loans, the first quarter of 2023 saw a drop to 88.85 percent. The arrears rate has steadily increased as interest rates climbed higher.
"Banks will likely be eager to help owners in arrears with payments start the process of selling those properties, meaning we are likely to see increased stock coming onto the market soon,” says Kriek. “The normal stock cycle in the property market will also return if sellers see positive signals, such as stagnation or decline in interest rates. Until that time, sellers are likely to hold out on selling as much as they can to avoid being price takers.”
Is it time to buy?
Of course, the best time to buy depends on various factors and conditions, changing from region to region, case to case and price range to price range.
However, Kriek says for anyone set on semigrating from the northern provinces to the Western Cape or elsewehere on the coast, the time is ripe to buy and they should not wait.
Properties selling against home loan debt typically carry an average sales value of around R1.3 million. Properties at this price point and anything below the average price have seen and will continue to yield a respectable return on investment. “Demand very clearly outstrips supply for properties priced below the average,” says Kriek.
The exception is properties in the very high range, above R4 million. "I see evidence that prices will come down further so it may be best for prospective buyers in that price range to bide their time until the market bottoms out,” says Kriek. “Of course, there are exceptions, such as Sea Point or Stellenbosch.”
Lastly, Kriek advises that, with interest rates having peaked, purchasers should opt for a variable interest rate instead of a fixed interest rate. "Homeowners taking advantage of the eventual drop in the repo rate can enjoy their property while reducing their bond repayments," he says.
MEDIA CONTACT: Rosa-Mari Le Roux, firstname.lastname@example.org, 060 995 6277, www.atthatpoint.co.za
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