Repo rate cut provides much-needed boost to housing market activity

Source: Dr Andrew Golding, chief executive of the Pam Golding Property group.

This takes the prime rate to 11.25%, a level last seen in April 2023.

Says Golding: “This second reduction in the repo rate will provide further impetus to activity in the housing market – particularly among first-time buyers - who had already begun responding positively to the previous interest rate cut in September (2024).

“There are already signs that demand from first-time homebuyers is recovering as price pressures subside and an interest rate-cutting cycle begins. Demand from first-time buyers soared in September, according to ooba Home Loans, as this sector is generally sensitive to interest-rate movements and is likely to respond more positively to additional cuts.

“Lower rates make purchasing a home more affordable and encourage individuals who paused plans for retirement, downsizing, or relocating due to higher interest rates to commit to buying.

“In Gauteng, for example, where house prices have been under pressure for some time, lower interest rates appear to have sparked a marked increase in activity – more so than in the Western Cape (according to the Q3’24 FNB Estate Agent Survey).

First-time buyer surge

Similarly, regions which typically have high levels of first-time buyer activity – such as the Free State, Mpumalanga and Gauteng South and East – are likely to benefit more from increased first-time buyer demand as housing affordability improves and young adults are able to shift from the rental market to purchasing their first home.”

“Furthermore,” says Golding, “it is not only interest rates which are having a positive impact on the housing market. Improved confidence in the wake of the formation of the GNU and easing price pressures - particularly repeated cuts in the petrol price - are all contributing to an easing in financial pressure on households, coupled with increased market sentiment, thereby reviving demand from buyers across all sectors of the market, including the luxury market.

“A series of petrol price cuts have also played a key role in dampening overall price pressures. While the November increase in fuel prices was a temporary setback, initial indications are for a major R2 per litre drop in prices in December (2024), which will reinforce the current easing in prices.

“The inflation rate is forecast to remain anchored around the Bank’s 4.5% target during the next few years, which should ensure there is sufficient scope for further interest-rate relief. However, this will be very data-dependent and there are a number of potential factors which could change the outlook.

Economic outlook improves

“In addition to the good news on the inflation front, the prospect of a further significant petrol-price cut in December will offer considerable relief to consumers as well as help to further dampen price pressures.

"A further positive is that international ratings agency S&P Global has noted that the GNU has resulted in an improvement in SA’s economic outlook due to the more rapid implementation of structural reforms, while the Treasury remains committed to fiscal consolidation.

“As a result, the agency changed SA’s outlook from neutral to positive, which is seen as the first step towards a ratings upgrade. A return to investment grade rating would likely take several years, but this initial step is encouraging, and further progress will be made as long as growth improves and Treasury keeps a tight grip on government finances.”

Concludes Golding: “There are likely to be additional interest-rate cuts during the course of next year, with a total of around 100 bps anticipated in additional relief in 2025 - including this week’s 25 bps rate cut.”