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Staying the course will give homeowners an edge over the long term

Homeowners may have to hold out a little longer for a reprieve from increasing monthly bond repayments, as at least one more interest rate hike could be on the cards.

“However, there are signs that an increase on Thursday could be the last of the current rate-hiking cycle, and along with our industry partners, we are hopeful of seeing see the repo come down over the remainder of this year, and into 2024,” says Carl Coetzee, BetterBond CEO.

Current homeowners and aspirant homebuyers would do well to remember that property is a long-term game. Staying the course through periods of rising interest rates will give homeowners an edge when rates start to come down again, as they invariably do.

Rate increases over the past 18 months have been aimed at curbing inflationary pressures. SA Reserve Bank (SARB) Governor, Lesetja Kganyago, wrote in Business Day recently that while the SARB has implemented 75 basis point hikes in the past year – faster than prior cycles – cumulative repo rate increases have been below those of South Africa’s emerging market peers. “With headline inflation having remained above the target midpoint for an extended period, the SARB Monetary Policy Committee has had to act decisively to prevent inflation expectations from de-anchoring more permanently,” he writes.

Economist Dr Roelof Botha, contributor to the monthly BetterBond Property Brief, says, “Extraordinary circumstances have led to high domestic and global inflation over the past 18 months. These factors make a compelling argument for the temporary lifting of the Reserve Bank target range, and the lowering of interest rates. The declining real values of residential properties indicate an absence of demand-led inflationary pressure. This market is in a sixth year of zero or negative real price growth.”

Botha adds that there is no sign of demand inflation. “Capacity utilisation in manufacturing remains below pre-pandemic levels. Unutilised capacity has risen above 20%. Factory owners attribute this to lack of demand. By hiking interest rates that lead to increased production costs, the Reserve Bank is arguably contributing to higher inflation.”

Few economists expect inflation to remain above the upper target range for much longer. Botha says, “This means that interest rates are likely to drop during the second half of the year.” Popular opinion is that SA can expect a drop of 50 basis points by the end of the year.

On a R2 million bond, payable over 20 years, a drop in the repo rate from the current 11.25% to 10.75% would mean a monthly saving of R680, taking monthly bond repayment from R20 985 to R20 305.

“SA’s inflationary environment should be viewed within a global context,” adds Coetzee. “We are not the only country raising interest rates to curb inflationary pressures.”

The International Monetary Fund says global median inflation is on a downward path, with the US leading the way towards a larger measure of price stability. “SA has followed suit, and the Consumer Price Index is bound to move within the Reserve Bank target range by the third quarter of 2023. With lower inflation on the cards, this should translate into lower interest rates later in this year,” Botha adds.

“We are already starting to see signs of a pick-up in the residential property market, with Lightstone reporting a slight increase in national year-on-year house price inflation, now at 2.64%, for the first time since 2021,” says Coetzee. “The strong possibility that interest rates are likely to drop during the second half of this year promises welcome financial relief for homeowners.”

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