It is also the first time in at least two years estate agents are seeing the return of the firsttime home buyer to the region, says FNB analyst Siphamandla Mkhwanazi.
Interestingly, he says, the FNB estate agent survey shows a return of these buyers to areas near Table Mountain, for years completely offlimits for buyers looking for property under R2 million.
Mkhwanazi says, however, in general affordability has not improved sufficiently in the region, despite this sharp deceleration in houseprice growth over the past 18 months or so.
“This suggests there is scope for further downward adjustment in Cape Town house prices. A nominal decline in prices is, therefore, conceivable at this point.”
He says it is also possible that house-price deflation seen in some upmarket areas “could reverberate throughout the city, resulting in meaningful improvement affordability”.
This would, however, undermine meaningful recovery in national prices, which could ultimately prolong the period of subdued house-price growth in South Africa.
Mkhwanazi explains the ratio of average purchase price in Cape Town to average household income (gross income) in the Western Cape has been rising since 2012 and reached 6.6 by 2018, the highest it has ever been in the period for which we have data (since 2000).
In the previous housing market cycle, the ratio peaked at 6.2 in 2007, then gradually declined until 2012. Over that five-year normalisation period, prices in the city declined by an average 3% y/y between 3Q08 and 3Q09.
“If this experience is anything to go by, and assuming prices and income will converge at some point, there is reason to believe this ratio will soon normalise.”
Given the “subdued economic environment which means salaries are not likely to rise substantially”, the only way for this to happen is “if Cape Town house prices adjust further down”.