This has not happened in South Africa's housing market since 2011

The latest FNB Residential Property Barometer for September showed a slight improvement in transaction volumes alongside mortgage advances.

The FNB HPI remained steady in August, at 3.6% year-on-year, said FNB economist, Siphamandla Mkhwanazi. Year-to-date nominal house price growth remains around the 3.5% y/y mark, largely similar to the 3.6% y/y recorded in the same period in 2018.

The eThekwini metro continues to over-perform, supported by booming developments in the North Coast regions, as well as renewed interest in the city centre, the lender said.

Positively, indicators point to a narrowing demand-supply gap. "This is driven by both the mild improvement in demand and the persistently slowing pace at which properties enter the market for sale," said Mkhwanazi.

"The slowing pace of supply is driven by sellers withdrawing their properties, amid tough selling conditions, as it is becoming increasingly difficult to attain asking prices. This is countered somewhat by the surge in the supply of new stock (particularly flats and townhouses), as well as the rising emigration-related sales."

On the demand side, FNB said that the improvement can be attributed to some easing in buyer despondency post elections, the increased bargain hunting amid attractive pricing, increased competition between mortgage lenders as well as lower interest rates.

This is reflected in the steady growth in mortgage extension, which has averaged 4.3% y/y year-to-date, versus 3.4% y/y in the same period last year.

"In fact, mortgage advances have been growing faster than the average house price growth in South Africa since the beginning of the year. Except for the brief period in the beginning of 2018 (Ramaphoria), we have not seen mortgage lending outpacing house prices since June 2011.

"Increased lending, however, has been more skewed towards the higher-priced segments. Activity in the lower end is being hindered by lack of affordability, primarily due to the scarcity of adequately priced properties in prime locations," said Mkhwanazi.

This is also reflected in the transaction volumes, which FNB estimate using the Deeds registry data, that have ticked up by 0.9% y/y in 2Q19. The disaggregation of the data by purchase price showed that the R700,000-R1.8 million and R1.8 million-R3.5 million ranges were the best performing segments, growing by 5% y/y and 2.4% y/y respectively in the first half of this year.

"Looking ahead, we expect the combination of easier global financial conditions, weak domestic demand and contained inflation to allow the SARB some space for further monetary policy easing," said Mkhwanazi.

As such, as a base case, FNB has pencilled in a 25bps cut by the end of this year.

"If global policy rates and domestic inflation push lower than currently expected, there could be more room for further policy easing. This, however, is counteracted by the deterioration in South Africa's fiscal metrics and increased risks to global growth" the economist said.

"While lower interest rates will provide underlying support to consumers in the near term, the structural impediments to stronger economic growth remain intact, and these will heavily influence the performance of the housing market," said Mkhwanazi.

These include high government indebtedness, inefficiency of large state-owned entities, a lack of government capacity and low private sector investment (thus constraining employment growth), he added.

FNB said it expects house price growth to average between 3.5% and 4% y/y this year, and in 2020.