South Africa’s housing market remains in the doldrums – a reflection of the wider malaise in a barely growing economy saddled by high interest rates, rampant unemployment and income-chowing inflation.

“The FNB House Price Index growth slowed to 1.1% y/y in July, down from 1.6% in June (revised from 1.7% – Figure 1). This is in line with the continued decline in buying activity, with mortgage volumes now tracking closer to pre-pandemic levels,” FNB said in its latest monthly Property Barometer. 

(Source: FNB Economics)

(Source: Deeds, FNB Economics)

“The average bond amount, estimated from deeds data, declined by approximately 3% in Q2 2023, the first decline in 14 years (since Q2 2009),” the bank said. 

That is clearly a significant development. Put another way, the average bond amount must have grown or remained the same each quarter over the course of 14 years.

This perhaps points to buyers putting more cash down up front as interest rates rise and banks becoming more frugal about lending, as well as downscaling on the demand side.

As FNB notes, it signals “… a downscaling trend by buyers, along with tightening of lending standards amid higher borrowing costs and affordability constraints”.

It may also point to asset depreciation and a loss of overall wealth in the economy, which is never a good sign. 

“Similarly, year-to-date tax data reveals that property transfer duties are down by 10.3% compared to the same period last year,” FNB said. 

Property transfer duties are a relatively small portion of overall government revenue. But in the face of collapsing inflows from the mining sector as the commodity price windfall comes off the boil, and an economy that is barely growing, the Treasury needs every rand it can lay its hands on. 

This underscores the mounting consequences of a depressed housing market. It is both a reflection of the underlying economy and a force that can have a wider impact. The US subprime mortgage crisis, for example, played a major role in the 2007-2008 global financial crisis. 

“Feedback from estate agents indicates a widening gap between income levels and current house prices. Approximately 45% of surveyed estate agents assert that income levels have considerably lagged behind house prices, while 24% believe income has managed to keep pace,” FNB said. 

“Consequently, a larger proportion of sellers have needed to recalibrate their expectations and reduce their asking prices. Although the average discount quantum on asking prices remains consistent, hovering around 10%, our survey suggests that 81% of sellers in 2Q23 were compelled to lower their asking prices, reflecting an increase from 75% in the previous quarter. 

“Collectively, these indications suggest a subdued environment for house price growth.”

There are, of course, regional variations, with both the Western Cape and (perhaps surprisingly) the Eastern Cape displaying relatively stronger performances on this front. 

The bottom line is that South Africa’s housing market is in a funk, and if some version of a subprime crisis were to emerge here, it would just be one of many crises afflicting the economy. DM