FNB said on Wednesday that its House Price Index (HPI) showed that the annual growth in South African house prices decelerated in June to 3.7% from 4.2% in May. But the market remains surprisingly resilient in the face of the frail economic recovery amid the on-going Covid-19 pandemic. 

“Our proprietary market strength indicators show that demand is now moderating, following a strong rebound in 2020 and into 2021. However, these remain above pre-pandemic levels, in part reflecting the positive effect of lower interest rates on market activity,” FNB said. 

That makes the housing market, along with mining, one of the few sectors that has rebounded above pre-pandemic levels. If the rest of the economy mirrored these trends, South Africa would be ploughing full steam ahead. But the property market clearly does not reflect broader economic trends, except in a distorting, funhouse mirror kind of way.

So in part, the housing market shows that households with the means have been able to take advantage of the 300 basis points in cuts that the central bank wielded on interest rates last year, bringing the prime rate to 7%. 

It also shows how such households – which would be generally middle/upper class/white collar – have avenues of flexibility. If you can work from home, you can work pretty much anywhere, provided you have decent Wi-Fi. 

“Current activity also reflects pandemic-induced shifts in consumer behaviour: with the greater adoption of work-from-home and homeschooling, households had to re-evaluate their housing needs, which leaned in favour of home ownership,” FNB said. 

Pointedly, it also noted that liquidity continues to flow, but mostly to the affluent. 

“Mortgage extension continues to grow at a faster pace, and loan-to-price ratios remain high. Our investigations show that much of this credit is funding purchases in the middle- to upper-priced segments,” FNB said. 

And the outlook remains cloudy.

“Recent data shows that overall demand may have peaked, but remains above pre-pandemic levels. However, it is still unclear how much of the current demand is temporary (i.e. driven by cyclical factors, such as low interest rates) and how much is permanent (i.e. driven by changes in human behaviour). 

“This will determine how long demand will remain above pre-pandemic levels,” FNB noted. DM/BM