But signs of softening have emerged.
In recent quarters the FNB Holiday Towns House Price Index has seen its growth starting to lose momentum, from a relative revised high of 6.4% year-on-year as at the 3rd quarter of 2016 to 4.8% by the 2nd quarter of 2017.
4.8% year-on-year price growth remains a reasonable rate in a weak economy. However, this does translate into a shift into negative real growth, given that it is now below consumer price inflation which remains above 5%.
It is realistic to expect slower holiday town markets, possibly underperforming the more primary residence-driven major metro regions, given that a tighter economy will probably drive the emergence of more conservative households, increasingly concerned about their financial future. In such an environment, non-essential home buying such as holiday homes become less of a priority.
WHAT THE FNB ESTATE AGENT SURVEY AND FNB’S VALUERS SAY ABOUT HOLIDAY TOWN MARKETS
Along with mild slowing in holiday town house price growth, we have seen the 2nd quarter FNB Estate Agent Survey returning a lower estimate of holiday home buying expressed as a percentage of total home buying.
After some prior quarters of increase, the percentage of home buyers believed to be purchasing holiday homes declined from 3.77% in the 1st quarter of 2017 to 2.55% in the 2nd quarter.
One quarter’s decline is admittedly too early to draw hard and fast conclusions.
FNB’s valuers have perceived some market weakening in the Coastal Holiday Town markets.
The FNB Valuers Market Strength Index (MSI) for Coastal Holiday Towns (MSI notes on page 4) has underperformed that of Major Metros noticeably since 2008, having outperformed significantly in the pre-2008 boom years.
The valuers did, however, perceive a relatively good improvement in holiday town markets from 2012 to 2015.
But since a 46.92 post-2008 high in the FNB Holiday Town MSI, however, the valuers have perceived a weakening in the holiday town markets to where the Holiday Town MSI reached 38.79 in the 2nd quarter of 2017. By comparison, the FNB Major Metro Valuers MSI remained significantly higher at 51.75 as at the 2nd quarter of 2017.
Do the valuers’ perceptions of the holiday town markets’ strength levels being below the metros tie in with relative house price performance of recent years? The answer is by-and-large “yes”.
LONGER TERM RELATIVE PERFORMANCE OF HOLIDAY TOWN MARKETS
Around the 2003-2006 period, the Holiday Town House Price Index far outperformed our FNB Deeds Data version of the National House Price Index, which is dominated by the major city markets.
That period meant that, from the start of 2001 to the end of 2007 (when the property boom ended), the Holiday Town House Price Index grew cumulatively by 420.3%, far outperforming the 291.7% cumulative growth in the National House Price Index. For most of that time, the FNB Valuers’ MSI was stronger than the FNB Metro MSI, which ties in with the stronger holiday town house price growth pre-2008.
However, from the start of 2008 to the 2nd quarter of 2017, the relative pictures have been reversed. Holiday home buying since the boom years has been more on the backburner, and the holiday town prices deflated more significantly than the major cities during the 2008/9 recession period and for a while thereafter, having “overheated” more significantly than the cities during the boom period.
The net result is that, whereas the national average cumulative house price growth rate is estimated at 51.18% from the 1st quarter of 2008 to the 2nd quarter of 2017, the FNB Holiday Towns House Price Index has only managed cumulative price growth of 14.49% over the same period. This also largely ties in with the FNB Valuers Holiday Town MSI underperforming that of the metros.
Putting it all together, i.e. the outperformance of holiday towns pre-2008 and the underperformance since, and we see a cumulative holiday town house price growth rate of 447% from the start of 2001 to the 2nd quarter of 2017. This is virtually the same as the cumulative growth of 437% in the National House Price Index.
Recently, over the past year or so, the FNB Holiday Town Repeat Sales House Price Index has shown very similar rates of year-on-year growth to the FNB National Repeat Sales House Price Index (the longer term Deeds Office version). However, a look back over the past 17 years shows the Holiday Town House Price Index to be more cyclical than the National Index, the latter being dominated more by the more stable urban primary residential demand in the major cities.
In the pre-2008 boom, it was the Holiday Town House Price Index which far outperformed the National Index, and vice versa from 2008 to the present time. This has translated into cumulative house price growth in both indices from the beginning of 2001 to mid-2017 being almost identical.
Where too from here? The signs are that the FNB Holiday Towns House Price Index year-on-year growth rate is slowing, and with FNB’s Valuers perceiving holiday towns’ market strength to have weakened more noticeably of late than the major cities, we believe that the holiday towns may revert to underperforming the larger cities in terms of house price growth.
This expectation is based on the expectation that the stagnant economic conditions in South Africa will persist, that consumer confidence will remain weak, and that a more cautious household focused more on essentials and less on luxuries will emerge. That militates relatively in favour of more primary residence-driven major urban markets.