House price growth at slowest in nearly nine years, FNB says

SA house prices rose at their slowest pace in almost nine years in March, and the Covid-19 pandemic is expected to put pressure on transaction volumes, according to FNB.

The FNB House Price index rose by an annualised 2.8% in March, the slowest pace of growth since May 2011, with bank seeing a change in behaviour in the market, including some sellers taking their homes off the market.

The index is compiled based on data from FNB mortgage approvals, and was mostly compiled before SA’s lockdown took effect on March 27. The effect of the lockdown in prices and volumes is not yet showing in the data.

Anecdotal evidence suggests that fears about the magnitude and endurance of the virus have led some sellers to take their homes off the market, said FNB property analyst Siphamandla Mkhwanazi.

Other anecdotal evidence, such as the amount of web traffic to property portals, also suggested a reduction in demand from buyers.

“We expect the combination of these factors to result in a sharp drop in transaction volumes, as buyers delay their purchasing decisions until the uncertainty lifts,” said Mkhwanazi.

Empirical evidence suggests that pandemics tend to have a sharp but short-lived effect on property markets, and that volumes tend to suffer more than prices, Mkhwanazi said.

The overall recovery in SA, however, is expected to be drawn out due to pre-existing weakness in the economy.

“While aggressive cuts in interest rates and possibly a reduction in house prices will eventually support purchasing activity, in the short term this will likely be outweighed by heightened uncertainty and second-round effects on the labour market,” FNB said.

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