FNB | Residential Property Barometer- January 2024

Dear Business Partner

Please find attached the latest FNB Residential Property Barometer, with detailed outlook for 2024.

In summary:
House price growth moved sideways in January

  • The FNB House Price Index growth averaged 0.6% y/y in January, unchanged from December, which was revised from 0.8%. The sideways movement house price appreciation is consistent with our view that price growth bottomed in 4Q23, but that a discernible upward trend should commence in 2H24, once affordability improves. Market strength indicators suggest that both demand and supply of properties for sale are contracting, and by a similar magnitude (Figure 2). Below, we outline what to expect in the residential property market in 2024.

Outlook: A steady recovery in sight

  • Following above-trend transaction activity between 2H20 and 2022, demand for residential property is expected to have reached its nadir in 2023. Available data suggests that mortgage volumes have declined by 28% to date, as affordability pressures kept prospective buyers at bay, and others seeking cheaper properties, as reflected by the compression in average loan sizes. Similarly, data suggests that house price growth may also have reached its trough in 4Q23, at a lowest level since the Global Financial Crisis (GFC). Nevertheless, lower-priced segments outperformed, reflecting the buying-down effect and the persistent supply deficiencies. Meanwhile some high value segments, particularly in regions along the Western Cape coast, gained support from the semi-gration trend which now seems to be normalising.
  • While affordability pressures should ease somewhat, a rapid rebound in activity and house price growth is unlikely this year. We project home buying activity to move sideways in the near term, at levels 10% below pre-pandemic average (between 2015 and 2019) but to pick up steadily over the forecast horizon. The gradual decline in inflation and borrowing costs, combined with employment gains, should modestly stimulate demand in the interest-rate sensitive segments over the medium term. This could see volumes mean-revert by 2025. In the longer term, volumes should stabilise modestly above pre-pandemic levels, supported by improved sentiment; employment and income gains; lower interest rates; faster population growth as well as innovation and widening access to credit markets. We expect volumes to grow by 0.8% this year, before lifting by 12.7% in 2025.
  • From a valuations’ perspective, the subdued house price growth trajectory is likely to persist for a little while, until the lagged impact of lower inflation and borrowing costs filters through, from late 2024 to early 2025. In the longer term, price growth will be supported by improved GDP growth, and a combination of stronger demand for housing and improved structural affordability, following the persistent real house price correction since the GFC. We expect the FNB House Price Index (HPI) to average 1.4% this year, relatively unchanged from the 1.5% in 2023, before lifting to 3.0% in 2025.

Full report attached.

The BondExcel team

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