Lower mortgage rates
Interest rates for mortgages hold considerable impact on one’s buying power and demand. Lower interest rates can help make mortgages more affordable and therefore encourage homebuying, mainly in the mid/high income segment. However, if interest rates increase, the cost of borrowing rises as well, resulting in potentially reduced demand as mortgages become more expensive. The Brazilian Central Bank (BCB) periodically adjusts interest rates in Brazil based on the financial and economic situation, and these changes can directly affect the real estate market.
According to BCB, the total granted loans (considering both individuals and legal people) in the Severance Indemnity Fund (FGTS) segment, a fund created to protect workers in Brazil that are dismissed without just cause, remained at its historical high for a month (Nov 2023) at BRL8.9 billion, versus the historical average at BRL4.2bn, while the Housing Finance System (SFH) at BRL6.9 billion remained below its historical average since 2018 at BRL7.8 billion.
Furthermore, still in November 2023, mortgage rates decreased across the board MoM: for the FGTS segment, the rate dropped to 7.9% (from 8.0% in Oct 2023 and 8.2% in Nov 2022), similar to SFH, at 11.3% (from 11.6% and 11.3% in Nov 2022), which we consider as still very high. In addition, total Brazilian Savings and Loan System resources reached their highest historical level in Nov 2023, at BRL1.4 trillion (+13% YoY). This was mainly boosted by securitizations, which grew 40% YoY, achieving 46% in terms of the breakdown, while savings accounts remained the majority (54%) but dropped 3% YoY.
Savings deposits net outflow of -BRL72 billion in 2023
Mortgage loan origination amounted to BRL12 billion in Nov 2023 (+6% MoM but -16% YoY), while YTD it amounted BRL137 billion (-17% vs. Nov 2022). December was only the second month of 2023 with savings accounts in a positive inflow (+BRL10 billion in 2023). The accumulated outflow for the full year of 2023 reached -BRL72 billion (vs. -BRL81 billion in 2022 and -BRL35 billion in 2021). Lastly, the mortgage loan interest rate increased in November, reaching 10.7% per year (vs. 10.7% in Nov 2023 and 9.2% in Dec 2022).
INCC +3.3% YoY: Materials under control and salaries still high
In December 2023, the index for civil construction in Brazil (INCC), remained on its stabilization path close to its lowest level since 2004, at 3.3% (vs. 3.3% in Nov 2023 and 9.4% on Dec 2022). Breaking it down, materials appeared to be under control, with an accumulated index of 0.6% in the month, while salaries at 6.6% pushed up the INCC. Furthermore, construction costs, as measured by the Brazilian Chamber for the Construction Industry, have normalized, at unit cost per sqm of BRL2,065 in October 2023, which means a +3.6% YoY growth. The main pillars underpinning cost increases in October were labor and materials, at a respective 52% and 45% of total industry.
December 2023: Rent index still high while sales aligned with inflation
In terms of prices, sales appeared to be aligned with inflation, while rent re-adjustments remained weighted by discounts given during the pandemic. December 2023 sales prices for residential real estate maintained their low growth pace, at 5.1% (vs. 5.1% in Nov 2023 and 6.2% on Dec 2022). Meanwhile, rent prices appeared to have peaked in the past months and are now flattening. In December 2023, rent increase data came in at 16.2% (vs. 16.0% in Nov 2023 and 16.6% in Dec 2022).
