Macroeconomic Overview & Main Reasons for Selling
Category Market Update
How's the market doing? If you are at the coal face of real estate transactions daily, as we are, you would have noticed a shift in the past two months with enquiries on properties down on prior months. When we look at the underlying macroeconomic data it becomes clear what is going on and helps us predict the market activity over the next six months.
As a quick overview, our CPI inflation rate is currently at 7,5% (Sept 2022 figures) and more importantly, our PPI rate is 16,3% - this producer price index is key to determining the direction of the CPI Index. The PPI index peaked at 18% in July this year. Surging PPI inflation over the past two years has filtered through into our CPI and Interest Rates. For a property practitioner, the cost of money is one of those key variables that impact market demand and is therefore of particular interest to us. With our CPI rate also having peaked in July at 7,8% this gives us an indication that interest rates may also have peaked or are near the top of the short-term cycle. The Reserve Bank's repo rate is currently at 6.25% and the Prime Lending Rate is at 9,75%. This is already a big jump from the 7% in Oct 2021, but still, below the 10,5% to 10% range we had for most of the three years 2017-2020. The property market is not receiving any support from the overall GDP growth rate that contracted by 0.7% in the quarter to June 2022 with the prior two quarters only reflecting 1,5% and 1,8% growth.
KZN has experienced crazy shocks with the riots and floods being heaped on top of the impact of Covid. If you are looking for an example of a perfect economic storm this would be it. Resilience has now become our defining characteristic. The impact of closed roads and dysfunctional sewer treatment facilities and infrastructure is being felt in certain areas and can be expected to impact negatively property prices across those suburbs. These times always present amazing buying opportunities so we need to look out for those. FNB's recently published Property Barometer indicates the FNB House Price Index growth at 3,1%. Quarterly average house price growth has dropped from 3,8% in 2Q2022 to 3,3% in 3Q2022. Mortgage extension volumes remain good showing that the banks are very willing to grant mortgage bonds and are competing for the mortgage business.
The average time a property remains on the market has grown to 10 weeks and 1 day (71 days) but is still below the long-term average of 91 days. The price range of properties impacts significantly this measure - homes in Zimbali would have at least a 180-day average with the top end of the market exceeding that. Reasons for selling are always an informative measure and "Downscaling due to Financial Pressure" is at 19% on average, but at 30% on this measure in the lower segment of the market indicating that tighter financial markets impact disproportionately more on the lower end of the market. The main reason for selling remains "Downscaling with Life-Stage", measured at 22%, with "Relocating within SA" at 14%. Ballito is a regional beneficiary of the semigration trend which is expected to continue. "Emigration-related sales" remain at 8% on average.
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