Understanding the current state of the market
Category Blog
In the prevailing economic environment, both buyers and sellers of residential property have been closing deals at levels of discomfort. Buyers are finding that there is competition on well priced houses, and they need to nudge their prices upwards. Sellers are struggling to accept the market status quo. A residential property market that hasn't kept up with inflation since the Financial Crisis of 2008. Resulting in well below par house prices.
So much so that most sellers who bought after 2015 have been transacting now at lower nominal prices than what they originally paid for their homes.
This is particularly noticeable above the R2,5-million price level range. And it has been quite shocking in the top end of the homes market, where prices range from R5-million upwards.
The reality is that growth in house prices has slowed down to a point that it is, once again, not keeping up with inflation as it has done over the past 15 months.
Opportunities abound
Property prices should have surged at a much higher rate than the 4% plus experienced after the initial Covid lockdown in March 2020. There was a huge surge in demand as a consequence of the 3% drop in interest rates. As in any industry or market place a huge demand is usually met with a dwindling supply. Resulting in a shortage of supply and an inevitable increase in prices.
However, due to the effects of Covid and the lockdown, and the subsequent upheaval in lifestyle, and people's fortunes, the surge in demand was met with a surge in supply. Many more houses than normal came onto the market. This dampened house price appreciation, to only 4% plus. Then the Delta variant arrived and the shocking July unrest in Kwa-Zulu Natal and Gauteng. This dampened sentiment substantially. The market has emerged from this slower...with both buyer and seller activity decreasing in most areas.
The economic and lifestyle consequences of Covid have mostly washed through the system and a new normal has arrived. The residential market is poise to appreciate substantially, as soon as there is political calm and economic improvement. (2% growth is not enough)
Meanwhile, a positive consideration for home sellers who are destined to lose money on their properties in the current market is that opportunities abound for them to invest their capital in other environments that are appreciating at a healthier rate.
In the current investment climate there are bullish opportunities to invest capital at a much better rate of return than is offered in the property market at the moment. Certain sectors in the stock exchange are a prime example.
A good seller strategy in this current market would be to discount the value of the house for sale to a level of slight discomfort - and then hold the line. Accept the status quo and re-invest in an attractive option.
Buyers
Houses that are well priced, and appear to be good buys, are currently selling reasonably quickly, compared with houses that are price-inflated, and provide some element of wiggle room. The reality is that well-priced houses regularly sell at, or close to, prices advertised.
Would-be home buyers (with a medium to long term perspective) are in the fortunate position that now is the best time in a lifetime to take the plunge. Not least because interest rates are at their lowest in 60 years, and property prices have seldom been more inviting.
Conversely, if you are a homeowner and have no compelling reason to sell your home - don't sell. Rather wait a year or so until the market picks up steam.
Author: Ronald Ennik
