House price growth in South Africa declined in February 2023, with buying activity declining, and properties sitting on the market for longer.

The FNB House Price Index’s annual growth declined in February, averaging 2.3% year-on-year (YoY), down from 2.7% in January.

The bank’s Estate Agents survey indicated that buying activity continues to decline, with agents’ activity dropping (from 6.1 to 5.7 out of 10) in 1Q23. This is a departure from the typical seasonal lift in the year’s first quarter.

The average time on the market also stretched to 75 days, which was last seen in Q3 2020.

Moreover, roughly half of the properties are on the market for three months or more – a 33% increase from Q1 2022.

According to the survey, agents in the Western Cape were the most satisfied – scoring an agent sentiment of 68% – with their market conditions slightly better.

The Western Cape scored a market activity score of 6.9 (out of 10) – slightly lower than the 7.0 rating in Q4 2022 – which was higher than the national average of 5.7

Agents in KwaZulu-Natal (KZN) region are the most dissatisfied – scoring an agent sentiment of 34% – with their market conditions, despite market activity remaining stable at 5.7

This is likely due to a decrease in perception after widespread floods in 2022 and the July 2021 unrest.

The agents’ sentiment across the nation’s provinces are below:

In Q4 2022, the R500k-R750k was the best performing, however, in Q1 2023, the R250k-R500k bracket saw the most robust activity, with its rating increasing from 6.4 to 8.0.

The <R250k bracket saw the second-best rating – increasing to 6.6 from 5.6 the last quarter.

FNB said that the higher activity in the lower-priced segments shows a downscaling trend amid increasing higher financial pressures as homeowners look for cheaper alternatives.

Activity levels by price backet are below:

Reasons for selling 

FNB added that financial-pressure-induced sales remain elevated at 17% of sales volumes in Q1 2023, remaining unchanged from the prior quarter.

It added that, at these levels, the prevalence of downscaling is consistent with the historical average of 18% from Q4 2007.

That being said, financial pressure-induced sales are extremely high in the affordable market segment, with roughly 22% of sales linked to financial pressures. However, this does mark a decline from 30% in 4Q22.

FNB said that the rapid increase in debt servicing costs have been especially pronounced in lower-income households.

Whereas emigration-related sales remain steady at 9%, significantly lower than the 18% peak seen in 2019.

Moreover, the survey said that there has been an uptick in relocation within South Africa’s borders, increasing to 13% in Q1 2023 from 8% in Q1 2020. FNB said that this was consistent with the working-from-home trend.

However, incidents of upgrading have slowed recently, decreasing from a peak of 17% in Q2 2021 to 10% in Q1 2023.

Market Expectations

FNB said that interest rate tightening is expected to slow as inflation has appeared to have peaked and economic growth concerns grow.

It expects a further 25 basis points hike next week, taking the peak interest rate to 7.50%, with mild interest rate cuts only occurring in Q4 2024.

Market strength indicators also show that the housing market’s resilience is starting to weaken. This aligns with the increased financial pressure on household budgets, weak economic fundamentals and embittered buyer sentiment.

It also expects activity to soften even further in the next months across all price brackets, with House Price Growth expected to slow to roughly 2% this year from 3.5% in 2022.

It said that price growth will only start lifting in H2 2024 as interest rate pressures ease and marginal buyers return.

---

Read: Prices for these properties in South Africa are rising much faster than the rest

---