City bucks trend for first-time buyers

FIRST-time home buying in Cape Town continues on its downward spiral in stark contrast to the rest of the country which sees levels either stabilising or increasing.

The FNB estate agent surveys throughout last year estimated average first-time buying to be 20.27% of total home buying for the year – a figure at almost the same level as the 20% average for 2016.

This “more-or-less sideways move”, according to FNB’s John Loos, is mostly thanks to the strong first-time buyer rate in Gauteng which reflects the region’s superior home affordability levels compared to other metro regions.

“Going back a few years, following the onset of interest-rate hiking early in 2014, we saw the highly cyclical group of first-time homebuyers diminishing in significance relative to the total home-buying market.

“This is typical, given that on average, younger aspirant homebuyers should be far more dependent on credit to enter the home buying market, and thus more sensitive to interest rate changes than older repeat homebuyers.”

After first- time buyers reached a multi-year high at an estimated 26.5% of total home buying in 2014, they fell back to an estimated 20% by 2016, according to the average of the FNB estate agent surveys that take place quarterly. But last year, the interest rate cycle turned “ever so slightly”, with a lone interest rate cut of 25 basis points in July.

“This was after a long sideways interest rate move since early-2016, and this mild turn in the cycle appears to have been just enough to have stabilised the first-time buyer percentage which, at an average of 20.27% of total home buying in 2017, was slightly higher than the 2016 average,” Loos says.

A stable interest rate environment this year could see this percentage moving sideways again, or even slightly upward should interest rates decline further.

But while the national average move was reasonably solid at near 20% last year, Loos says some major divergences opened up on a major metro region level, and these divergences, within the same interest rate environment for everyone, appear strongly reflective of major home affordability differences by region.

“Gauteng is the driver of the slight national average first- time buyer percentage increase in 2017, with both of the province’s major metropolitan regions seeing increases in their percentages.

“Greater Johannesburg saw an increased average first-time buyer percentage, from 21.6% in 2016 to 25.9% in 2017, while Tshwane region went from 23.75% to 26.7% over the same period.”

In the coastal metros, the first-time buyer picture appeared “less positive” last year.

“Although not weak in the extreme, both eThekwini and Nelson Mandela Bay saw declines in their average estimated first- time buyer percentages – Mandela Bay from 19.6% in 2016 to 17% in 2017, and eThekwini from 20.5% to 14.7% over the same period,” Loos says.

However, the most severe decline in estimated first-time buying levels took place in Cape Town where the region’s strong house-price growth in recent years has led to significant home affordability deterioration.

“We believe that a sharp decline in its estimated firsttime home-buying percentage is strongly reflective of this affordability deterioration.”

Loos adds: “The region’s annual first-time buying percentage has been below the national average for nine consecutive years, but has diverged far more significantly from the national average since 2016, after it fell sharply from 18.39% in 2015 to 12.8% in 2016, and then further to a mere 7.5% in 2017.”