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Demand and Supply are Converging in Residential Markets

Demand and Supply are Converging in Residential Markets

Demand and Supply are Converging in Residential Markets, however, is it too Early to Call it a Seller’s Market?

A period of uncertainty coupled with market concerns has left the industry in a rut. Even though there are predictions of an imminent correction in the residential market, the statistics are not supporting this. Upon examining the FNB Housing Index from May 2021, there appears to be a smaller gap between supply and demand and this gap is the smallest that it has been in 3 years. 

One of the concerns in the residential market has been that supply has outweighed demand over the last 3 years. As indicated by the FNB report, there has been a pullback of new developments over the last year and, this combined with a low interest rate period, has closed the gap between demand and supply. This is reflected in the annual property growth values. These figures are shown in the graphs supplied by FNB in their report below. The YoY price increases are also showing improvement in 2021.  

The FNB housing index indicates the following as of May 2021:

The gap between demand and supply (buyer and seller) has narrowed with the demand growth exceeding supply growth for the first time in the first quarter of 2021. This is due to a YoY 40% reduction in new properties introduced into the market (according to stats SA) as well as anecdotal feedback from agents indicating that sellers are holding back at present. In the interim, the lower interest rates and continued willingness of lenders to finance properties means that demand has improved. The gap between demand and supply has narrowed as indicated in the graphs below.

Figure 2: FNB Market strength indicies - Demand vs supply growthFigure 3: FNB Market strength indices Demand supply gap

Monthly FNB House Price Index

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