FNB PROPERTY BAROMETER UPDATE: Interest rates may have peaked, yet inflation risks loom amid promising growth ahead
Key themes
• Interest rates have likely peaked, with a measured cutting cycle coming into view in the latter half of 2024.
• Our projections of slightly lower interest rates, moderately better growth outcomes, and continued employment gains should help support a modest lift in demand for property, and consequently, property prices from 2H24.
• However, risks to the inflation outlook are skewed to the upside, and should they materialise, borrowing costs may remain high for longer than we currently anticipate, which could delay the expected recovery in housing markets.
• Positively, surveyed data suggests improved housing market conditions in 1Q24, although there is lingering uncertainty over near-term sustainability.
A sideways movement in house prices, in line with expectations
The FNB House Price Index growth averaged 0.7% y/y in February, slightly lower than the 0.9% in January (revised from 0.6%). These low levels of house price appreciation should persist in the near term, amid still elevated living and borrowing costs, as well as heightened political uncertainty, both domestically and internationally.
That said, our base case view suggests that the house price cycle has bottomed, and that the gradual decline in inflation and borrowing costs from 2H24, combined with some employment gains, should modestly stimulate demand in the interest-rate sensitive segments over the medium term, which would support a moderate uptrend in house prices.
Encouragingly, surveyed data shows that buying activity has trended higher in the last few months, which has seen a reduction in the time it takes to sell a property. However, there is still a great deal of uncertainty around the sustainability of these improvements. This reflects agents’ lingering concerns around affordability, political uncertainty, and lack of job security.
