The SARB's Monetary Policy Committee decided to keep the repurchase rate at its current level of 8.25% per year, meaning that the prime rate holds steady at 11.75%.
High Street Auctions Director Greg Dart says it was no surprise that the MPC left the repo rate unchanged today, but bullish post-election investor sentiment means South Africa’s mid-term economic outlook is positive, to say the least.
“There was very little chance of the MPC moving to lower the repo rate without the US central bank indicating a similar change, and economists are predicting that will only come in September.
“That said, if Reuters’ panel of economists is on the money with their forecasts, we could see not one, but two cuts before the end of the year. Both are likely to be conservative – no more than 25 basis points each – but this will drop the rate to 7.75% and offer consumers substantial relief.”
Dart says there’s no doubt, though, that the property market is already starting to boom after the national election.
“Investors who quietly disappeared from the scene in Q1, are suddenly back in play and eager to snap up those opportunities on the market now, before prices really start rising in response to buyer demand.
“With rate cuts in the offing this year and a far more positive economic outlook for the country, there really won’t be a better time than now, to buy.”
Unchanged repo rate is disappointing
Lew Geffen Sotheby’s International Realty Chairman Lew Geffen says while today’s MPC announcement of an unchanged repo rate is disappointing, the decision is realistic in light of the Consumer Price Index still coming in above the SA Reserve Bank’s target range.
“While this leaves the prime rate at its highest level in 15 years, the outlook is far from negative.
“National and global investor sentiment has changed dramatically since the ratification of the Government of National Unity (GNU). Although it’s early days, we’re already seeing a level of positivity regarding South Africa’s future economic prospects that has been lacking for at least a decade.
“The Liberty Bell has rung, in my opinion, and we’ll continue to see the effects in the months and years to come.”
Geffen says the property market has already sparked in reaction to the GNU.
“In the past month, Gauteng has got the biggest shot in the arm, with the number of sales in areas such as Randburg, in particular, blowing up.
“There’s suddenly huge appetite for properties around the R2 million mark, and the feedback we’re getting is that these buyers have been waiting to see what would happen with the election. Now they’re diving in with alacrity.
“For the most part the national market needs to recover by at least 20% just to make up the ground it’s lost in the past couple of years.
“That movement has already started, and it’ll take off like a rocket when we do see an interest rate cut, which should be in September. And if the economists are right, the MPC will gift us with two 25 basis points cuts before the end of the year, closing out 2024 with a repo rate of 7.75%.
“With the market set to turn so dramatically before the end of the year, what this means for buyers is that they’ve either got to catch the first ship, or spend a lot more getting on the last.
“Prices are going up. Now is the time to buy.”
The decision is out of step with the economic needs of the country
According to Seeff the decision is out of step with the economic needs of the country, and perhaps a little tone deaf in terms of the plight of consumers and homeowners, especially since it was a split decision by the MPC members, he says further.
In some instances middle class homeowners have been paying up to R1,500 to R3,000 per month more on their home loans on top of other above average credit and living cost hikes. The burden on consumers and the economy is too high.
The higher inflation is not due to overexuberance in the economy or overspending by consumers. The only real effect of the higher interest rate has been that it has stalled the economy, and pushed costs up for consumers, essentially punishing consumers.
Seeff says the interest rate has now remained unchanged for well over a year. It is higher than what it was following the 2007/8 Global Financial Crisis. It has resulted in significant value erosion in the property market, which is down by about 25%, while price growth has stalled to below 1%.
The high interest rate and living costs are especially affecting first-time buyers who are unable to afford homes. Additionally those with home loans are increasingly falling into arrears as the banks are reporting increasing numbers of distressed homeowners. This is concerning for the market and economy.
Nonetheless, Seeff says the market remains positive that an interest rate cut must now come soon as there is more than enough reason for it. This is good news for buyers who should take advantage of the flat prices while they can in view of the outlook of rate cuts ahead.
The slower market means buyers are facing less competition right now, and could secure a good price. Despite a mild tightening, mortgage lending conditions also still remain favourable for the market, and for buyers.
Investing now means buyers can benefit from the savings once the rate comes down. Additionally, once the market rebounds, and more buyers start competing, it will likely result in higher property prices and value appreciation for those who have bought now.
Seeff concludes that a growing economy and property market is vital. There is a lot of positivity about the GNU (Government of National Unity), and that better times are just around the corner. If we look back at how well the economy started growing when the interest rate was about 2% lower, it gives hope that we can get back to that.
Impact on housing market
Dr Andrew Golding, chief executive of the Pam Golding Property group says from a residential property perspective, while the outlook for the local housing market has improved, current economic conditions remain tough, which is keeping housing market activity subdued and household finances under pressure.
This is evidenced in the fact that according to Lightstone statistics, the average number of days a home remains on the market in SA’s five major metro markets has risen from 69 days in 2015 to 92 days for 2024 to date, while according to a recent FNB survey, one of the main reasons for selling in Q2 2024 was downscaling due to financial pressure, accounting for an estimated 21.5% of all sales recorded in their loan book.
Furthermore, ooba statistics reveal that nationally, applications from first-time buyers declined once more in May 2024, reducing to 44.3% in June – a seven-year low - as household finances remain under pressure. First-time home buyers are unlikely to return to the market en masse until interest rates are cut.
In the interim, people continue to buy and sell houses for various reasons including semigration between provinces, changes within the family such as marriage, births and life stage, employment opportunities, or relocation for lifestyle reasons, among others. This ensures that there is still a level of activity regardless of market conditions.
We do anticipate, on balance, that activity will increase toward the year-end as the anticipated rate cuts materialise, boosting market sentiment in general, and which will underpin the emerging recovery in house price inflation.
Overall, the outlook for the local housing market has improved - the GNU is positive for confidence levels – business and consumer – both of which are important for economic growth, with consumer confidence particularly important for the housing market.
The GNU potentially will improve the growth outlook as issues such as power and logistics are resolved – not only will an easing of these bottlenecks bolster economic activity but will also contribute to the softening of price pressures, reinforcing the scope for rate cuts.”
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