FNB has released its September Property Barometer
Key themes:
• The risk of a less transitory rise in inflation and higher inflation expectations has driven more aggressive policy tightening in advanced markets and should result in the SARB further front-loading interest rate hikes. We now expect interest rates to peak at 6.75% by the end of 2022, slightly above the pre-pandemic level of 6.5%. We pencil in a moderate interest rate cut in 1H24.
• The steeper-than-expected interest rate hikes suggest a less supportive environment for home buying activity. As such, market volumes should continue normalizing towards pre-pandemic levels.
• Support factors for market activity range from stronger post-pandemic household balance sheets and a recovery in non-labour income for higher income households to competition and innovation in the mortgage market, particularly in lower price segments. Downside risks include the rising probability of a global recession and escalating geopolitical tensions.
Annual house price growth moved sideways in August
Annual growth in the FNB House Price Index remained unchanged between July and August, averaging 3.4%. Slower price growth from post-pandemic highs reflects relatively softer demand amid higher living costs and the waning interest rate support. The broader picture, however, suggests a resilient market, as illustrated in previous reports and credit extension data which recorded mortgage advances at 7.1% y/y. Nevertheless, the “demand-supply gap”, estimated from our property valuers database, shows a steady weakening in demand, with lower-priced segments faring relatively better.
We expect buying activity to follow a gradual normalization path towards pre-pandemic levels in the coming months as higher living costs erode affordability. Support factors for market activity include stronger post-pandemic household balance sheets and a strong recovery in non-labour income for higher-income households as well as competition and innovation in the mortgage market, particularly in the affordable market. We fully acknowledge risk factors to this view, including the rising probability of a global recession and escalating geopolitical tensions.
Overall, we maintain our forecast of average house price growth of around 3.5% this year, lower than the 4.2% average last year, with variations across price segments. For next year, we expect house price growth to average 3.4%.
Output shrinks, but employment gains
GDP contracted by 0.7% q/q in 2Q22 as flooding, frequent load-shedding, high input and transportation costs, as well as global trade disruptions suppressed economic activity. This contraction pushes GDP back below the pre-pandemic 4Q19 level, corroborating our view of a fragile recovery as most economic sectors had not fully recovered.
Nevertheless, this data print does not alter our current-year growth forecast of 1.8%. Despite the apparent decline in economic activity in 2Q22, the latest Quarterly Labour Force Survey (QLFS) data showed that the economy created approximately 648 000 jobs between 1Q22 and 2Q22, an increase of 4.3% q/q. The “unexpected” employment gains in 2Q22 align with sentiment indicators that have consistently shown positive hiring intentions across many sectors.
The recent energy market reforms, combined with the private sector’s apparent interest to invest in ports, should underpin employment growth over the medium-term. However, the prevailing uncertainty from geopolitical tensions and fears of a material global economic slowdown pose a downside risk to the employment outlook.
STATEMENT from FNB
