How the higher interest rate now impacts the market
Category Market Update
The upward adjustment of the interest rate is no doubt having an impact on consumers and homeowners with mortgage bonds. The interest rate is affected by various factors.
The global economic challenges continue to weigh on the SA economy. We are also seeing the impact of the Eskom energy crisis to the effect that the economy shrunk by 1.3% in the last quarter of last year, after showing encouraging growth of 1.6% in the third quarter of 2022.
When it comes to the interest rate, the Reserve Bank also keeps an eye on the value of the SA Rand against the major currencies and we have seen it weaken this year. For example, from around R16.72 to the dollar in mid-January to over R18 by late-March.
A second key consideration for the Reserve Bank is inflation. After declining in recent months it was disappointing that the CPI inflation rate spiked again in February to 7% from 6.9% in January. The Bank's current target range is between 4% and 6%.
While globally interest rate hiking cycles were expected to have come to an end, the ongoing challenges has seen central banks hike the rate again this month. This includes the European Central Bank which upped its rate by 50bps while the US Fed recently hiked its rate by 25bps.
Although the pressure on the interest rate is not ideal for property, it is still largely within the range of the last few years and largely factored into the market. We continue seeing a stable market, and it remains business as usual for property.
Aside from a higher interest rate, we are also facing a higher cost of living, fuelled by higher food inflation and electricity costs. NERSA (National Energy Regulator of SA) has for example approved another hike of almost 19% this year.
The impact for buyers is that they now need to budget for higher borrowing costs. On the upside though, we continue seeing favourable lending conditions with excellent mortgage approval rates and deposit requirements still the lowest in over a decade. Buyers are also still able to secure more favourable terms.
With a slower market and fewer buyers, price growth continues to decline. According to FNB, it is only around 2% while properties are also taking longer to sell on average. So, while we continue seeing good demand, asking prices are under pressure.
It is therefore advisable that sellers ensure their property is marketed at the correct asking price to attract the attention of buyers. That said, the best place to be selling in the country is still Cape Town, and the Seeff Property Group continues to see excellent results for our clients.
Seeff has been a leading property brand for over five decades and we have helped clients successfully navigate through the various market cycles. Home is our Story and property my passion. Please do not hesitate to contact us at any time to discuss your property needs or what your property might sell for in the current market.
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Author: Gina Meintjes
