Rookie buy­ers hold their own in the mar­ket

FNB Es­tate Agent Sur­vey crunches num­bers

Weekend Argus (Saturday Edition) - - PROPERTY - JOHN LOOS

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.

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