Thursday, 16 March 2017 20:31

Residential demand conditions - 1st time and age group home buying

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Estimated 1st time buyer percentage sees a rise for the 2nd successive quarter.

John_LoosFNB

A key early indicator of a residential demand strengthening can be a rise 1st time buying. 1st time buyers are highly sensitive to the economic and interest rate cycles, especially the latter. This is because of the high dependence of this younger group of aspirant buyers on credit to buy homes.

Given the 1st time buyer group’s being more financially constrained than many older repeat home buyers, changes in overall housing affordability, as determined by the combination of interest rates, income and house price levels, are thus very important to this group.

Recently, we have seen housing affordability beginning to improve on a national basis. Interest rates haven’t risen further for almost 1 year, while average house price inflation has slumped to a mere 0.8% year-on-year by February 2017, a growth rate far slower than both consumer price inflation as well as average household income growth, implying declining house prices in “real” terms.

The net result, we believe, should be some increase in the rate of 1st time buying when expressed as a percentage of total home buying in recent times.

Early signs from the FNB Estate Agent Survey are that this may be starting to take place.

After a multi-year low estimate of 18% of total home buying as at the 3rd quarter 2016 FNB Estate Agent Survey, the percentage of buyers believed to be 1st time buyers has risen for 2 quarters to 21% by the 1st quarter of 2017 survey.

In the grander scheme of things, this is not a major rise yet, and the quarter to quarter movements can typically show some volatility, but it is conceivable that this is a sign of the start of a rise in 1st time buying levels, and we could see some further mild increase in the next few quarterly Estate Agent Surveys.

This latest 1st time buyer percentage, however, remains significantly below the 28% high reached in early-2014.

On a major regional basis, we are perhaps seeing just how significant the impact of housing affordability changes can be. It is old news that the Western Cape, and especially the City of Cape Town Metro, has had a far stronger housing market than the rest of the country, and thus far stronger house price growth in recent times. This, we believe, is key to a recently very low 1st time buyer percentage in Cape Town.

Whereas the slower markets of Joburg and Tshwane had estimated 1st time buyer percentages of 27% and 21% respectively for the 2016/17 summer quarters, Cape Town had a far lower 8% estimate for the same 2 quarters.

This regional differential perhaps demonstrates just how sensitive the 1st time buyer population group can be to affordability challenges, and for these younger buyers, Cape Town appears to be proving a home buying challenge.

This would suggest that the currently very low house price inflation (outside of the Western Cape) in much of the country could strengthen 1st time buying, provided interest rates remain unchanged as is the FNB expectation through 2017.

Using Deeds data to examine individuals’ (“Natural Persons”) property buying by age cohorts, however, we don’t yet see any meaningful increase in the younger 20-29 and 30-39 groups from where many 1st time buyers come.

The 20-29 year age group saw its percentage of total property registrations rise very slightly from a low of 11.98% for the 3 months to November 2016, to 12.11% for the 3 months to January 2017. However, the 30-39 year age group percentage declined slightly from 29.5% to 29.1% over the same period, meaning no reversal yet in the declining trend of under 40 aged buyers. 

Last modified on Thursday, 16 March 2017 20:44

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