The question on every homeowner’s mind - should we sell?

Carl Coetzee, CEO of BetterBond

After two consecutive repo rate hikes of 0.75%, South African homeowners are asking the question: should we be thinking about selling our home?

Carl Coetzee, CEO of BetterBond, responds:

Q: Will interest rates continue to climb?
A: It is difficult to predict what the Monetary Policy Committee will decide at their next two meetings (November and January), but some economists have forecast a 0.5% repo rate rise at each of these, and then holding steady after that. FNB has also predicted an increase of 0.5% in November. Sound fiscal policy dictates that interest rates must fluctuate to mitigate inflationary pressures – they can’t remain at the record-low levels we saw during the pandemic. However, the value of owning a tangible asset like property that appreciates over time remains unchanged.

Q: Should homeowners sell their homes and rent instead, as interest rates climb?
A: Buying a home is more than just a financial investment. Having a home of your own provides financial security and affords you the freedom to choose your own lifestyle. It’s also more rewarding to know that the amount you are paying each month for your home is going towards your own bond, and not someone else’s.

Q: What is the good news?
A: The property market has proven to be a resilient asset class, especially during challenging economic times. Many expected the market to collapse during the pandemic, but the opposite happened. The record-low interest rates of 2020 helped to bolster the property market so that it could withstand financial headwinds. The increase in first-time buyer activity during that time was a boon for the residential property market. Much of the buyer activity is now at the middle to upper end of the market, where buyers are less affected by interest rate changes.

According to StatsSA, the real estate sector was one of the industries to make the largest positive impact on GDP growth in the second quarter, rising by 2.4%, and one of only four industries to recover to pre-pandemic levels. BetterBond’s bond approval ratio is up by 2.91% for the 12 months ending September 2022, compared with the 0.16% seen over the same period last year. Banks still have an appetite to lend and by working with a bond originator who will apply to more than one bank, it is possible to secure an interest rate concession that will reduce monthly bond repayments.

Q: Is South Africa the only country experiencing interest rate hikes?
A: Our monetary policy is in line with major economies globally – European Central Bank, US Federal Reserve and Bank of England have all raised by this percentage. So, we are not alone. And we know we must keep inflation in hand, so it is worth having one eye on the bigger picture. South Africa responded preemptively to global inflationary pressures by starting its interest rate hike in November last year already. So we are closer than others to reaching the end of this tightening cycle.

Q: So what does this mean for aspirant home buyers and home owners?
A: It’s probably realistic to expect a period now where we will see lower transaction volumes and dipping house prices. We also anticipate a bit of a segmentation in the market, between the lower end which is dependent upon housing finance, and the upper end where housing equity and wealth play a greater role.

However, with careful budgeting, it is still possible to invest in a home, and consumers are reminded to consider affordability when making financial decisions.