The recent announcement of a 25 basis point increase in interest rates places South Africa’s repo rate at 7.25 percent.
While the rate rise is less than the three straight 75 basis point increases witnessed in the second half of 2022, consumers are feeling increased pressure from rising expenses, ongoing power outages, and sluggish economic development.
However, ooba Home Loans’ chief executive officer, Rhys Dyer, believes that Thursday’s mild increase is one of the last rate hikes South Africa would witness in 2023.
“Inflationary pressures are currently abating, and South Africa appears to be close to, if not at, the apex of the current interest rate cycle. “Interest rates have returned to pre-pandemic levels, now at 10.75% compared to 10.25% in the first half of 2019,” added Dyer.
Internationally, the reversal of China’s zero-Covid-19 policy is a source of positive news. The reopening of the Chinese economy should give the world economy and local commodity markets a much-needed lift.
Local real estate market
According to the most recent ooba statistics, major banks continue to vie for house loan business with rates below prime at levels not seen in more than a decade.
In addition, the percentage of successful house loan approvals remained healthy, standing at 84.1% in the fourth quarter of 2022, up from 83.7% in the fourth quarter of 2021.
The national average purchase price increased by only 2.4% in the fourth quarter of 2022, which is additional positive news.
“Homes are becoming more affordable for prospective homebuyers, particularly in the segment of first-time homebuyers, where average purchase prices are lower than they were a year ago, indicating that homebuyers are getting more for their money.”
Reducing the impact of rate hikes
In addition, there are indications of increased liquidity among financially aware consumers, who continue to prioritize house deposits in order to meet affordability requirements and obtain a better interest rate.
“Our most recent statistics indicate that the average national deposit will increase by 22.8% from R97 723 in the fourth quarter of 2021 to R121 906 in the fourth quarter of 2022,” he said.
While first-time homebuying appetite remains subdued due to rate sensitivity, this category has shown an increased emphasis on deposits, with the average amount increasing by 14.3% (now R98 038) from the fourth quarter of 2021 to the fourth quarter of 2022, indicating prudent budgeting.
As South Africa’s interest rates stabilize, Dyer feels that present and prospective homeowners can begin to breathe a sigh of relief.
“With the probable exception of a single minor extra rate hike this year, I believe we are now out of the woods, and South Africans may begin to plan around an interest rate of 10.75 to 11%.
“We also believe that this stabilization will allow more buyers to better budget their monthly payments, given that we are at the apex of the interest rate cycle and that future rate movements are likely to be downward beginning in early 2024.”
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