S.A housing market activity rating rises

The fourth quarter of 2016 saw a slight rise in the Residential Activity Indicator in South Africa, climbing to 5.75 from the previous quarter's 5.59. While quarter-to-quarter fluctuations can be influenced by seasonal factors, this increase has sparked discussions about the state of the housing market in the country. Joining CNBC Africa to provide insights into this indicator and its implications was John Loos, Household and Property Sector Strategist at FNB. Loos mentioned that certain parts of the residential market are showing signs of positivity, while others lag behind. House price inflation has been on a downward trend, registering a 1.6% year-on-year decrease by December. Despite this, there are glimpses of hope as the estate agent survey activity rating, a significant leading indicator, experienced a slight uptick from 5.6 to 5.75 quarter-to-quarter. While it is too early to confirm a turnaround, the indicator's alignment with leading business cycle indicators for South Africa suggests a potential bottoming out in the residential market's activity levels. The macroeconomic dynamics have played a crucial role in shaping the housing market's current scenario. Homeowners and individuals have been grappling with interest rate hikes over recent months, which have put a strain on their finances. The demand-supply imbalance has kept the market tilted in favor of buyers, making it tough for distressed sellers to trade out or trade down in the current environment. Despite the challenges, there hasn't been a significant increase in non-performing loans, offering some relief to the market. One of the key factors influencing the static demand in the housing market is the tightening of mortgage criteria by banks. While some argue that stringent lending practices are hindering potential buyers, others point out a national affordability challenge that stems from the aftermath of the pre-2008 boom years. Loos highlighted that house prices are still relatively high compared to historical data, making it unrealistic for banks to offer loans at pre-2008 levels. The national credit act has also imposed constraints on lending practices, further adding to the complexity of securing mortgages. In terms of affordability, the market dynamics have shifted post the 2008 financial crisis, leading to a more cautious approach by financial institutions. Income is no longer the sole criteria for assessing loan eligibility; expenditure and debt commitments also play a significant role in the approval process. Even in the affordable housing segment, there are opportunities for 100% loans, indicating a diverse lending landscape within the housing market. While challenges persist in the housing market, the uptick in the Residential Activity Indicator offers a glimmer of hope for a potential turnaround. As the South African economy shows early signs of recovery, the housing sector could witness a gradual shift towards equilibrium, paving the way for price stability and improved market conditions.