Agents feel more home maintenance and upgrades effected in third quarter

IN THE third quarter of 2015 agent perceptions of home maintenance and upgrades improved, continuing a broad improving trend that dates back to late-2012.

Using a two-quarter moving average to smooth the data mildly, we depict agent perceptions regarding levels of home maintenance, and we have five categories or levels of home maintenance and upgrades in the survey.

The top level is that of value-adding home upgrades. After a very weak period around 2011 to 2013, the survey respondents have more recently reported a rising trend in the percentage of these homeowners investing in their properties with a view to adding value through 2014 and 2015 to date. From 3 percent of homeowners estimated to be doing value adding upgrades in the first half of 2013, we have seen this rise to 26 percent by the third quarter of 2015.

The level of these costly value adding upgrades took a very long time to recover following the 2008/9 recession, because the first priority, following that financial shock, was for many households to get standard home maintenance restored to full levels in cases where this had been deferred.

The next level down is the percentage of homeowners fully maintaining their property and making some improvements. This category appears to have peaked, and appears to be declining mildly, from 42.5 percent at the beginning of 2015 to 37.5 percent in the third quarter.

The next level down, the percentage of owners not improving but still fully maintaining homes, has shown a slight decrease from 29 percent at the beginning of 2015 to 26.5 percent by the third quarter.

This all translates into a slight decline in the category that one would always like to see being low, that is, the percentage of homeowners attending to basic maintenance only, which in effect means the home will deteriorate over time. This estimated percentage was 9 percent in the third quarter of 2015, slightly lower than the 10.5 percent of the prior quarter and the 9.5 percent at the start of the year.

Those owners allowing their homes to get run down, in the areas surveyed, returned a fairly insignificant 1 percent in the third quarter.

Although the second highest category, maintaining and making some improvements, saw its percentage decline slightly, together with value adding upgrades, the third quarter saw a rise in the combined percentage of the top two levels of home investment, and this has resulted in a further improvement in the overall perceived level of home maintenance and upgrades.

This is reflected in a further third quarter strengthening in the FNB home investment confidence indicator. This indicator is represented on a scale of - 1 to + 3. The indicator has shown a steady increase over the 2013 to 2015 period, to reach a level of +1.82 in the third quarter of 2015. This third quarter level is the highest level since the fourth quarter of 2006.

Finally, with regard to the reasons for why people undertaking home improvements are doing it, our agent survey still points to limited speculative building behaviour, to the tune of 9.5 percent of total home improvements.

This remains low when compared to the 24.5 percent estimate in early- 2006. The overwhelming majority (78 percent) still do it for their own use, while 12 percent do it because they can’t afford to buy elsewhere.

The home maintenance and upgrades market remains vastly improved from 2008/9 levels, and as at the third quarter of 2015 it appeared to remain on its steadily strengthening path which it has been on since around 2013.

Of late, agents still perceive only limited downward movement in the only attending to basic maintenance category, a positive sign. We watch this category closely for any increases, which could mean early signs that the agents may be starting to perceive rising financial stress in their areas.

More significant is their perception of further increase in the top level of home investment, namely value adding upgrades, along with further increase in the top two levels combined.

Given ongoing weak levels of economic growth and consumer confidence, though, near term trends in home investment will be interesting to watch. The FNB-BER Consumer Confidence Index for the third quarter of 2015 remained weak at -5, and this could signal the coming of a more cautious approach to consumer spending levels in general.

When tougher financial times arrive, due either to a weak economy or rising interest rates, home maintenance and upgrades are often deferred to a later date, as more pressing expenditure pressures take preference. And at present, the risk of a domestic recession is significant.

This could possibly mean that the upward trend in home maintenance and upgrade levels could slow, or come to an end, in the not too distant future.

● Loos is the household and property sector strategist at FNB Home Loans.