Close call for the MPC

It was a close call for the Monetary Policy Committee, with commentators prior to the repo rate announcement divided between whether the SA Reserve Bank would hike the rate by 25bps or 50bps, with a few even calling for a pause in the upward cycle.

Today’s hike of 25bps , which brings the repo rate to 7.25% and the prime interest rate to 10.75%, is the eighth consecutive increase in this upward cycle. The SARB began hiking rates fairly early, and having front-loaded its tightening, is now in a position to taper as global and local inflationary pressures begin to fade, allowing the pace of global interest rate hikes, notably by the US Federal Reserve, to ease. It is hoped that we have now reached the peak of the interest rate cycle, as the repo rate is now 75bps higher than in the months before Covid.

With the consumer inflation rate marginally better than expected in December (2022), with both core (excluding food and energy) and services inflation subsiding, a case could made for a 25bps repo rate increase. Globally, the key drivers of the recent resurgence in inflation – food and fuel prices – are now easing. Not only have oil prices softened since the last MPC meeting, but the rand has also strengthened and as a result, local inflation is expected to slow towards 5% – close to the mid-point of the Bank’s 3-6% inflation target – by year-end.

With inflation clearly beginning to subside, and with policy impacting on the economy with a lag, we have yet to see the full economic effects of the 2022 rate hikes on an economy already weakened by persistent load shedding. This, some analysts argued, should allow the MPC scope to slow the pace of additional rate hikes, raising rates by just 25bps at the January MPC meeting, thereby providing some breathing space for aspirant homeowners and those with mortgages.

However, ahead of the MPC announcement, other commentators leaning towards a 50bps hike cautioned that the latest BER Inflation Expectation Survey revealed an upward drift in inflation expectations of both business and trade unions (the most important price setters in the economy) during the final quarter of 2022 over a one-, two- and five-year period. Furthermore, the local currency remains vulnerable amidst an uncertain global environment and international interest rates continue to rise, all of which suggested that the MPC would err on the side of caution with another 50bps rate hike this week.

In regard to the housing market, activity remains steady across all sectors, buoyed by favourable bank lending as well as cash buyers – particularly in the luxury market, and with sought after nodes continuing to experience high demand.

Although the higher interest rates have impacted on first-time buyers, with ooba statistics revealing that applications from this sector slipped to 45.8% in December 2022 – the lowest level since early-2017, overall approval rates continued to rise in December, according to ooba, with both the trailing effective and first-time approval rates approaching previous record highs.

Encouragingly, banks remain competitive with the average concession relative to prime declining to -0.8% in December, which is the most competitive rate available to local homeowners since the final months of the global financial crisis in 2007/08. Furthermore, while 100% bond applications have slowed, applications for loans exceeding 100% of purchase price have risen from 1.3% in mid-2021 to 3.5% by December 2022. (Source: ooba)

Nationally, house prices rose by +3.9% last year (2022), with Western Cape house prices increasing by an average of +5.8% during that period, nearly double Gauteng’s +3.0%, while KwaZulu-Natal experienced house price inflation of 4.6%.

The Covid-induced boom in freehold price inflation has faded, with the gap between freehold and sectional title – which peaked at 4.0% in mid-2021 narrowing to just 0.7% in December, which is in line with the prevailing gap in the months before the pandemic.

In the major metros, a total of 45 110 homes (both freehold and sectional title), sold last year. Pretoria, with 15 278 units sold, accounted for 33.9% of all sales in the five major metro housing markets, followed by Cape Town with 10 487 sales comprising 23.2% and Johannesburg 9 106 sales at 20.2%. Durban saw 5 672 and Gqeberha 4 567 units sold.

All comments above by Dr Andrew Golding, chief executive of the Pam Golding Property group.

For further information contact Pam Golding Properties email headoffice@pamgolding.co.za or visit  www.pamgolding.co.za .

Posted by The Know - Pam Golding Properties