However, a look at the major regional breakdown points to very different regional housing markets. Gauteng appears the most price-realistic and relatively well balanced, averaging 12 weeks and 4 days time on the market. But certain Coastal Metro markets, notably Ethekwini and Nelson Mandela Bay, have recently appeared significantly less price realistic.
• The 3rd quarter 2017 FNB Estate Agent Survey saw the average time of homes on the market continue its gradual rise from 15 weeks and 4 days previous to 15 weeks and 6 days.
• From a multi-year low of 78% in the 2nd quarter of 2014, the market weakening since then has brought about a mild upward trend to 93% of all sellers dropping their asking price in the 3rd quarter of 2017.
• The estimated magnitude of drop in asking price increased, from -6.8% in the 2nd quarter of 2017 to -9.8% in the 3rd quarter survey. So more sellers are believed to be dropping their price and by a greater magnitude.
• The once booming Namibian market is battling. Whereas South Africa’s estimated average time on the market was 15 weeks and 6 days in the 3rd quarter of 2017, Namibia’s had risen to as high as 24 weeks and 2 days.
• From a multi-year high average of 14.42 estimated serious viewers per show house for the 4-quarters of 2013, we have seen a noticeable decline to 10.49 average for the 4 quarters up to and including the 3rd quarter of 2017.
• In the 3rd quarter of 2017 we saw 8% of agents citing “stock constraints” as an issue in their areas, unchanged from the previous quarter. This percentage is now far below the 24% high of early 2015.
price in real terms without actually realizing it.
This is all part of the concept of “money illusion” where people think about their money and wealth largely in nominal terms and not in real terms. The existence of such “money illusion” is often helpful in allowing the housing market to correct albeit over lengthy periods of time. If home sellers were to think about prices in real terms, they may hypothetically even resort to gradually lifting their asking price each week or month in line with broader price inflation in the economy, making market corrections even more difficult to achieve.
INDICATORS OF MARKET BALANCE AND PRICE REALISM
Average time of homes on the market rises further
In recent times, the housing market indeed appears to have been gradually away from equilibrium on a national average basis.
We take the, admittedly subjective, view that around 12 weeks (near to 3 months) average time on the market more-or-less represents a market equilibrium situation on a national average basis.
From 2014 to early-2016, the estimated average time had been moving broadly sideways at levels around 12 weeks, i.e. slightly less than 3 months, and this was a
time with very mild positive average house price growth in real terms (zero average house price growth in real terms theoretically reflecting a balanced market).
Through 2016 and into 2017, the market appears to have been broadly drifting away from that equilibrium, and the 3rd quarter 2017 FNB Estate Agent Survey reflected a continuation of this gradual trend. From 15 weeks and 4 days in the previous quarter, the average time of homes on the market in the 3rd quarter survey moved out slightly further to 15 weeks and 6 days.
We also see a larger magnitude of estimated average asking price drop
In the 3rd quarter survey, the estimated magnitude of decline, for those being required to drop their asking price, also became greater. From -7% in the 2nd quarter survey, the estimated percentage drop in asking price to make the sale increased to -9.8% in the 3rd quarter survey. So more are dropping their price and by a greater magnitude too, according to the survey.
The shift away from equilibrium/deteriorating price realism is driven by weaker demand these days.
The noticeable increase in the national average time on the market since early last year was arguably the response to slowdown in housing demand since 2014.
We have seen mild interest rate hiking from early-2014 to early-2016, along with a multi-year broad economic growth weakening since 2010 to recent growth rates hovering not far from zero percent. The raft of negative political and investor-related news in the form of sovereign ratings downgrades keeps both consumer and business confidence very weak.
A key residential “demand-side” survey question that is asked to the survey respondents, in the FNB Estate Agent Survey, is to give an estimate of how many serious viewers per show house they get before making the sale.
From a multi-year high average of 14.42 estimated serious viewers per show house for the 4-quarters of 2013, we saw a noticeable decline to 10.66 average for the 4 quarters of 2015. Thereafter, the broad movement has been more-or-less sideways up to the present, averaging 10.49 viewers for the 4 quarters up to and including the 3rd quarter of 2017 (and 10.29 for the 3rd quarter of 2017 alone).
This indicator’s recent levels are thus significantly down from earlier highs, and read along with an increasing average time of homes on the market suggests that the lower level of demand these days is insufficient relative to the prevailing supply.
Stock constraints remain low
Whereas South Africa’s estimated average time on the market was 15 weeks and 6 days in the 3rd quarter of 2017, Namibia’s average time had risen further to 24 weeks and 2 days.
Within South Africa, the shift away from market equilibrium, or towards less realistic pricing, has taken place more in certain of the country’s Coastal Metros, where we have seen the average time on the market record 20 weeks and 2 days in the 3rd quarter of 2017, virtually unchanged from the 20 weeks and 3 days in the previous quarter.
The Gauteng region, on the other hand, has been the “solid” region, having remained very near to an average time of 12 weeks on the market. However, it was this major region that showed a slight market weakening from quarter to quarter, with a slight increase in average time of homes on the market from 12 weeks in the 2nd quarter to 12 weeks and 4 days in the 3rd quarter of 2017.
To boost survey sample size when breaking down the survey into more detailed Major Metro regions (to reduce volatility), we resort to a 2-quarter moving average.
Using this 2-quarter average at Metro level, the 3 coastal cities (Cape Town, Ethekwini and Nelson Mandela Bay) have been noticeably weaker than the major Gauteng regions. Cape Town, the best of the Coastal Metro regions averaged 16 weeks on the market for the 2 winter 2017 quarters, Nelson Mandela Bay 17.57 weeks, and the Manufacturing-dependent Ethekwini a very weak 27.43 weeks.