The demand for property has rebounded to impressive pre-pandemic levels, helped in part by lower interest rate levels, First National Bank (FNB) said in its latest property barometer.
Price growth slowed for the first time in almost a year following 11 months of successive gains.
The FNB House Price Index’s annual house price appreciation slowed last month to 4.1 percent year-on-year from 4.6 percent in April.
The barometer indicates a moderation from the levels of 2020/21 following a strong comeback from late last year into early this year.
FNB senior economist Siphamandla Mkhwanazi said: “The slowing pace of price growth coincides with the slowing of our propriety demand indicators, namely the demand strength indicator derived from our property valuers’ database, as well as internal volumes of mortgage applications.”
He said both indicators had declined in the past two months.
Interest rate-induced demand may have peaked, following a strong rebound in the second half of last year and into this year.
“However, these remain above pre-pandemic levels, still reflecting the positive effect of lower interest rates on market activity,” he said.
Preliminary data also showed that loan-to-price (LTPs) ratios had continued to rise, suggesting a willingness by lenders to finance a bigger proportion of the purchase price, FNB said.
However, Mkhwanazi warned the surge in LTPs pre-dated the pandemic in 2017 and was largely attributed to intense competition among lenders in a thin volume market.
Segmenting by purchase price shows that experiences had been uneven across the spectrum, with buyers in the upper segments benefiting the most. Mkhwanazi said for the bottom 20 percent, where the average property purchase price was R420 000, LTPs initially declined, presumably because the initial impact of the pandemic affected mostly blue-collar workers, and gradually recovered in the second half of last year as economic activity ramped up.
By the first quarter, LTPs had broadly moved sideways for all segments, except the two uppermost segments that make up the top 40 percent by purchase price.
The longer-term demand fundamentals of the property market remained uninspiring, with the latest labour market data showing that 1.4 million fewer people were employed compared with the same period last year, and that the employment gains made last year were somewhat reversed in the first quarter of this year, which could weigh on wage income growth.