Subtitle: The Reserve Bank's decision to keep the interest rate unchanged and what it means for the housing market?

Date: 25 January 2024

Author: Giancarlo Agrizzi (Principal)

Why the decision to keep the interest rate unchanged? 

Interest rates are a useful tool that the Monetary Policy Committee (MPC) utilises to control inflation. As inflation increases the MPC may decide to increase the interest rate causing a downward pressure on the interest rates. This was the case when inflation was on the rise post-COVID. In the past few months, South Africa has seen a general downward trend in inflation levels with the latest data indicating that at the end of December 2023 our inflation rate was at 5.1%. This is the second consecutive month where inflation has decreased. 

The MPC's decision to keep the interest rates unchanged for a third consecutive time may be due to inflationary pressures being felt in the market such as currency volatility, wage pressure and energy shortages. Some other external concerns surround the crisis in the Middle East which threatens fuel and transportation inflation through disruptions to oil trade. 

Given the recent decision, sellers need to consider the effect this will have on the housing market. The housing market has somewhat stabilised with interest rate hikes being a thing of the past. However, as a result of those interest rate hikes, a number of buyers have been forced out of the housing market. Therefore, sellers will need to be realistic with their prices and rely on the advice of property professionals to achieve a sale within a reasonable timeframe. 

Ultimately, for those buyers still active in the housing market this is good news, as the increased bargaining power allows them to be more aggressive with regards to what they are willing to pay for properties.

In my opinion the outlook for the housing market this year remains positive but seller's expectations will have to be carefully managed in the year ahead. The recent data published by Lightstone revealed that overall the average selling prices in most suburbs dropped in 2023, the data also showed that overall the number of sales has dropped significantly as well. In 2024, while sales are expected to return to pre-COVID trends, it's unlikely that the sales prices will recover as quickly.