South African House Price Growth Stagnates but Hopes Rise for 2024 Recovery

The start of 2024 hasn't brought the much-needed relief to South African homeowners who were hoping to see an increase in property values. According to the latest FNB House Price Index, growth remained stagnant, averaging 0.6% year-on-year in January 2024, a figure that's steadfastly parallel to that of December 2023. This stagnation appears to be a stubborn hangover from the previous year's trends, where experts observed that the price growth had hit its lower plateau in the last quarter.

Despite these less-than-encouraging figures, there is a silver lining on the horizon, with financial experts from FNB projecting a potential uplift in house price appreciation during the latter half of 2024. With an expected improvement in affordability, the demand and supply dynamics, currently in contraction, may start to loosen their hold on the market, kicking off a discernible upward trend.

2023 was a challenging year for the housing market, signaling what may have been the nadir of demand for residential property since the flurry of above-trend transaction activity witnessed from 2020 to 2022. Mortgage borrowings took a significant plunge by 28%, reflecting the affordability barriers faced by potential homeowners. The decrease in affordability has procured a dual impact: potential buyers are deterred, and those in the market are opting for lower-priced properties, evident from the compression in average loan sizes.

Data from the fourth quarter of 2023 indicates that not only mortgage volume but also house price growth may have bottomed out, marking the lowest level since the Global Financial Crisis. Here, however, it's worth noting that lower-priced segments of the market showed some resilience, in part due to the buying-down effect and ongoing supply shortages.

The semi-gration trend, with homeowners moving particularly to high-value segments along the Western Cape coast, has provided some support to these areas but now shows signs of stabilizing. While a swift bounce back in market activity and house price growth is considered unlikely within the year, FNB posits a sideways movement in the immediate future. Levels are anticipated to be around 10% below the pre-pandemic (2015-2019) averages, with a steady increase projected across the forecast horizon.

Supporting a moderate recovery in demand, we look towards a gradual decline in inflation, lowering borrowing costs, and welcoming employment gains — factors crucial to stimulating the interest-rate-sensitive segments of the market. These incremental improvements may align to normalize the volume of transactions by 2025 and boost them modestly above pre-pandemic levels in the longer term. This normalization is anticipated to be supported by a conglomerate of improved sentiments, employment opportunities, income growth features, lower interest rates, swift population growth, and better access to credit markets.

Despite the cautious optimism, experts warn that the subdued trajectory of house price growth might continue to linger until the consequential impact of reduced inflation and borrowing costs begins to permeate, potentially arriving between late 2024 and early 2025. At that stage, a return to more dynamic market conditions could see the FNB House Price Index average grow by 1.4% this year, with a projected leap to 3.0% in 2025.

In conclusion, while South African homeowners and prospective buyers may have to ride out the challenging period of stagnant house price growth in the immediate short term, the outlook for 2024 and beyond holds nascent hope for revival and strengthening of market forces.