Rookie buyers hold their own in the market

FNB Estate Agent Survey crunches numbers

ACCORDING to the FNB Estate Agent Survey, for the second quarter of 2016, first-time home buying remained unchanged from the previous quarter when expressed as a percentage of total home buying.

This source of residential demand remains a significant source of housing demand, accounting for an estimated 21 percent of total home buying. Although the percentage estimate can be volatile from one quarter to the next, recent quarters’ estimates have remained below the multi-year high point of 28 percent, reached in the second quarter of 2014.

This percentage nevertheless remains solid compared to the 12 percent low reached around recession time in 2008.

Breaking it down to major regions, we use a two-quarter moving average due to volatility that can come with survey sample size getting smaller. For the first two quarters of 2016, we see Cape Town as having the lowest estimated first-time buyer percentage of 16 percent.

This region’s low percentage may in part have to do with affordability challenges for young buyers that may have arisen due to recent strong house price inflation.

In a follow up question, we attempt to ascertain the agents’ perceptions regarding the level of first time buyer panic in the market. First-time buyer panic refers to when first-time buyers become concerned with house price inflation, worrying that if they don’t buy now they will never be able to afford a home. This is important, because widespread buyer panic can cause a housing market’s price levels to overshoot, contributing strongly at times to house price bubbles.

The sample of agents’ surveyed has pointed to a significant percentage of first-time buyers suffering from buyer panic in recent surveys. However, this percentage has begun to subside over the last three quarters, from a high of 54 percent in the third quarter of 2015 to 46 percent by the second quarter of 2016.

This should be expected, given a market whose inflation remains in single-digit territory, and has broadly softened since 2014.

As it was, the still-relatively high first time buyer panic percentages of recent quarters have probably given an inflated impression of how widespread this problem was, because it must be borne in mind that ever since the end of the pre2008 residential boom period, overall transaction levels as well as first-time buying transaction levels have been relatively low.

Also tapering off as interest rates rise and affordability challenges mount has been the level of single-status home buyers compared to couples, expressed as a percentage of total home buying. Many of these may also be first-time buyers.

In the second quarter 2016 estate agent survey, the estimated percentage was 17 percent of total buying, down from the price quarter’s 19 percent and below the multi-year high of 20 percent reached early in 2014.

Like younger first-time buyers, single-status buyers are often more constrained financially due to not being able to combine two incomes to be able to afford a home.

The FNB Estate Agent Survey continues to suggest a decline in the phenomenon of first-time buyer panic, which may not only be reflected in the declining agent percentage estimate of the prevalence of such panic, but also in part in a decline in the first-time buyer percentage.

In the near term, a slow economy, rising interest rates and a slowing residential market, are expected to lead to further broad slowing in first-time buying as a percentage of total buying.

First-time buyer panic, too, is expected to diminish in significance. This is normal in toughening economic times, with first-time buyers normally being more cyclical as a group than the overall market, waiting on the sidelines in larger numbers in the tougher times.

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