Many South Africans continue to find themselves under such financial pressure that they are forced to sell their homes.
This is especially the case for owners of lower-value properties, who make up more than 20% of property sellers.
Fewer people are upscaling, house prices are under pressure, and homes on the market are taking longer to sell – all signs of a struggling property and consumer market.
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And all this comes ahead of next week’s interest rate announcement, where it is expected that the rate will be increased by another 0.25%.
The latest FNB Property Barometer, which reflects on data for the first three months of 2023, shows that 17% of property sales across all values are due to financial pressure. But of this volume, 24.1% of sales of properties valued at under R250 000 is due to money stress. Similarly, 21.3% of sales of homes valued from R500 000 to R750 000 is for this reason.
“Financial pressure-induced sales remain elevated at 17% of sales volumes in Q1 ‘23, unchanged from the previous quarter,” says FNB economist Siphamandla Mkhwanazi, adding that, at these levels, the prevalence of downscaling is consistent with the historical average of 18% since the fourth quarter of 2007.
“However, financial pressure-induced sales are disproportionately higher in the affordable market segment, with an estimated 22% of sales attributed to financial pressure.”
Although this figure is a “relief” from the 30% seen in the last three months of 2022, he says it nonetheless reflects the impact of the sharp increase in debt-servicing costs, which should have a more pronounced impact on lower-income households.
Furthermore, any increase in the prime lending rate can have a significant impact on a home loan, other debts, and also one’s overall financial well-being. While some property experts hold hope that the interest rate will remain unchanged next week, most expect it to be hiked by 0.25%.
With financial pressure still a factor for many South Africans, the FNB barometer also reveals that incidents of upgrading have slowed recently, from a peak of 17% in the second quarter of 2021 to 10% in the current quarter.
Time on the market lengthens
Meanwhile, property owners who are selling their homes are seeing them sit on the market for longer. The results from FNB’s estate agent survey suggest that the average time that properties are on the market has lengthened to 10 weeks and five days (75 days), compared to 69 days in the last quarter of 2022. While still shorter than the long-term average of approximately 91 days (since Q3 of 2004), Mkhwanazi says this is the longest time on market since Q3 2020, and is attributed to slowing activity and “stretched affordability”.
“The Western Cape had the shortest time on the market at 55 days, unchanged from the previous quarter, followed by Gauteng at 77, up from 69 days in the last quarter. Eastern Cape and KZN saw their time-on-market stretch to 85 days, from 73 days and 79 days respectively...”
House prices continue to drop
The FNB House Price Index’s annual growth decreased in February, averaging 2.3% year-on-year, down from 2.7% in January. Buying activity has also slowed this year, a reality that Mkhwanazi says is a departure from a customary seasonal lift in activity in the first quarter of the year.
“Additionally, agents estimate that approximately 50% of properties on the market for sale now take three months or longer to sell, an increase from 33% in 1Q22.”
Overall, he says, the slowing trend in activity and price growth is consistent with weaker demand, reflecting the impact of higher borrowing and debt-servicing costs.
“In addition, elevated living costs are eroding affordability, particularly among lower-income groups. Indeed, our survey results show that incidents of downscaling are more prevalent in lower-priced segments. As such, we anticipate house price growth of around 2% this year versus 3.5% and 4.2% in 2022 and 2021, respectively.
National year-on-year house price inflation, according to Lightstone’s latest residential price index, is 2.51%, a figure that has “decreased consistently” since early 2021.
“Annual property inflation remained steady in the Free State, KwaZulu-Natal, and Mpumalanga, increased in Limpopo and North West, and decreased in the Eastern Cape, Gauteng, the Northern Cape, and the Western Cape,” the report states.
The index also breaks down house price growth as at the end of January, by region:
- Limpopo - 8.5%
- Eastern Cape - 6.43%
- Mpumalanga - 6.42%
- Northern Cape - 6.4%
- Free State - 5.72%
- Western Cape - 5.33%
- KZN - 4.35%
- North West - 3.97%
- Gauteng - 2.51%
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