Key themes
Annual house price growth moved sideways in February
The FNB House Price Index growth moved sideways in February, averaging 3.8% y/y. Price growth appears to have stabilised in the last few months, likely due to the receding supply of properties on the market for sale. In our previous report, we showed that support on overall house price growth in recent months has come from a strong recovery in the affluent markets, while growth in low to middle segments continues to slow. Regional estimates show the Garden Route as the best performing district (out of 12 selected regions), with activity supported by the pandemic-induced semigration.
Russia-Ukraine conflict: Downside risks to the housing market
First, we explicitly outline our baseline scenario which assumes that intense fighting continues until the middle of this year, after which the conflict continues but the intensity reaches a steady-state position, during which the risk premia in global financial and commodity markets gradually declines. Then, we identify three channels through which the conflict could affect domestic housing markets:
- Cost of living/Inflation and interest rates
- Trade/Growth channel
- Confidence channel
Naturally, higher inflation, leading to higher interest rates, has a cooling effect on pipeline demand for mortgages, and eventually house price growth. Given the already elevated vacancy rates (weak demand) in the rental market, higher living costs (such as food, fuel, water and electricity prices) will further limit the ability of landlords to raise rental prices and delay the recovery. However, these were already baked into our expectations. A more novel risk is the potential impact of ongoing tensions on buyer sentiment. This is because recent activity (and support to price growth) has been driven by the recovery in higher-priced segments, which tend to be highly sensitive to sentiment. If sentiment is significantly dampened as a result, then our expectations of a continued recovery in affluent segments in 2022 may, likewise, be dampened. For low and middle-priced segments, a lot will depend on the extent to which this translates into further labour market destruction, prompting lenders to significantly tighten lending standards. So far, this is not our base case scenario. full report