Interest rate hikes, disappointing for housing market

Seeff chairman, Samuel Seeff has reacted with shock and disappointment to the announcement by the Reserve Bank’s Monetary Policy Committee to increase the repo rate by 50-basis points to 5,5 per cent, effective from 30 January.

For the first time in five years, the property market have seen more balance in the housing market with buoyant demand and increased sales volumes in the major metropolitan areas.

“This hike is premature and is not related to the excessive demand in the market,” says Samuel.

“It is unlikely to make a real difference other than to cool the economy and impact on the current positive sentiment in the housing market.”

Samuel explains that they would have liked to have seen an attempt on the part of the Reserve Bank to stave off a rate hike in the short-term given that stability is vital right now.

This decision is likely to have an unexpected effect on the psyche of the buyer and is sending the wrong message to the buying public.

Sentiment is a vital driver of the economy and property market and Seeff have therefore encouraged stability.

“As we have seen over the past year, positive sentiment has driven more demand and more balance in the market. This announcement could not have come at a more inopportune time,” he adds.

The rate hike effectively reverses the 50-point reduction of July 2012 with little real financial impact as it takes bond repayments back to the pre-July 2012 levels.

Based on a bond rate of 8,5 per cent and a 20-year repayment period, a home owner with a bond of about R800 000 would see his/her repayment increase by R255 per month from around R6,934 per month to R7,189.

The real drag on the market remains the tight mortgage lending criteria despite the fact that even with the rate hike, mortgages are still more affordable than ever.

“Given that about 90 per cent of all home buyers require some form of financial assistance, we would once again call for more relaxation of the stringent lending criteria,” says Samuel.

“Measures such as a longer repayment period for first time buyers and access to finance for self-employed and small business owners in view of the rise in this sector of the economy, could have a real effect.”

Right now, there are buyers aplenty, but sellers will need to revisit their prices if their property has been on the market for a while.

Given the favourable buying conditions though, this would mean that sellers could in turn take the opportunity to upgrade to a bigger house or better neighbourhood.