Should you wait for the interest rate to drop before buying property?

An article from from the July Newsletter, 2024 of ESI Attorneys:

South Africa’s property market is buzzing with anticipation and speculation regarding interest rates. Lesetja Kganyago, the governor of the South African Reserve Bank, has made it clear: interest rates will remain unchanged until inflation decreases. While many experts predicted a rate cut in the first half of 2024, it now seems unlikely that we’ll see any decrease this year.

Market Dynamics

Despite the stable interest rates, a transformation in the property market is expected, albeit gradually. Analysts foresee a shift from a buyer’s market to a seller’s market. This change, driven by eventual interest rate cuts, will likely lead to increased property values and faster home sales. Currently, it takes about 12-14 weeks to sell a home, but this could accelerate when rates eventually drop.

To Buy Now or Wait?

Deciding whether to buy a property now or wait for interest rates to decrease is a personal choice. Here are some key considerations for those thinking about buying in the current high-rate environment:

Advantages of Buying Now:

• Future Savings: Lower home loan repayments when interest rates eventually fall.
• Accelerated Payoff: Maintaining current repayment levels after a rate cut means paying off your mortgage faster.
• Less Competition: Fewer buyers now compared to a seller’s market.
• Potential Negotiations: Current market conditions might allow you to negotiate better prices, especially if prequalified for a loan.

Disadvantages of Waiting:

• Increased Competition: More buyers will enter the market once rates drop.
• Rising Prices: Property values are expected to increase when rates decrease.
• Missed Opportunities: Waiting might mean losing out on your dream home.
• Tougher Negotiations: Sellers may become less flexible.
• Uncertain Timeline: No guarantees on when or how significantly rates will decrease.

Strategic Considerations

• For Sellers: While waiting for a rate cut might seem appealing, selling now could be advantageous due to the time value of money and current negotiable buyers. Selling now avoids the risk of potential future market changes that could affect prices.
• For Buyers: Those ready to buy now can benefit from potentially lower competition and prices. Acting ahead of an interest rate cut may secure better affordability and capital appreciation as the market responds to rate changes.

Final Thoughts

Economic conditions can change unexpectedly, so it’s crucial to assess your financial situation and risk tolerance before making decisions. Whether you’re buying or selling, careful strategising is essential in the current market climate.

This year demands thoughtful planning for property transactions, as both buyers and sellers navigate a complex and evolving landscape.