“Today’s announcement by the Monetary Policy Committee of a further 25bps repo rate cut, bringing the prime rate to 11%, is very encouraging news for aspirant home buyers and those with existing mortgages, particularly as the outlook for interest rate relief has shifted significantly during recent weeks.
This is the third consecutive interest rate decrease, following reductions of 25bps at both the September and November 2024 MPC meetings, bringing the total interest rate relief in this current downward cycle to 75bps.
Although this month’s (January 2025) rate cut was widely anticipated, the outlook for interest rates for the remainder of the year is far less clear with opinions ranging from no further interest rate relief to one single cut of 25bps. However, the timing of any further rate cut is also debated with some commentators suggesting March 2025 and others later in the year.
This would make the current interest rate-cutting cycle unusually shallow. This is largely a reflection of the heightened uncertainty in the current global economy amidst concerns of a resurgence in inflationary pressures which is making many central banks – and the SA Reserve Bank in particular -cautious.
The stream of executive orders from the US White House is also creating uncertainty, prompting a reassessment of the likely scope for further interest rate cuts in the United States, which has shifted from initial expectations of three 25bps rate cuts to a single cut later this year. Fewer US interest rate cuts leave less space for local interest rate relief, and any further rate cuts will be dependent on developments both globally and locally.
Notwithstanding this potential uncertainty sentiment has improved, in general, with the previous two repo rate reductions of a cumulative 50bps in 2024 already creating a ripple effect across the residential property market – increasing uptake, particularly in the lower to middle sectors of the market, while also boosting confidence and activity in the luxury market.
Sales activity nationally is experiencing an uptick, with increased activity among first-time buyers – the most sensitive to interest rates – evident in the marketplace. According to ooba Home Loans, there is clear evidence of a recovery in first-time buyer demand during H2 2024, with notably strong growth in demand in Mpumalanga, Johannesburg and Gauteng South and East. The banks continue to support the housing market, with the average (weighted) concession relative to prime improving across all regional markets in 2024.
The demand for investment or buy-to-let properties surged to 15.1% of applications in December 2024, according to ooba, with investment demand averaging 12.6% of applications last year – up from 10% in 2023. While investment demand rose in most regions during the course of last year, this remains concentrated in the Western Cape, with 38.8% of all applications in Dec 2024 reflecting this demand.
From a Pam Golding Properties perspective, the increased activity in the residential property market is borne out by the fact that November and December 2024 were busy months, with our group sales well ahead of transactions concluded in Nov/Dec 2023.
For the local housing market, the recovery in house prices continues to gather momentum and become more broad-based. While the Western Cape remains the primary engine of the recovery, having consistently outperformed the national market during the past five years, the rebound in house prices has spread to most other regions as pressure on household finances eases.
According to the Pam Golding Residential Property Index, national house price inflation has risen steadily from below 2% in late 2023 to +5.1% in December 2024.”
