FNB Property Barometer Estate Agenct Home Buying Survey Q3 2014
Category Market News
After prior quarters of a slowing pace of improvement, a “jump” in the 3rd Quarter 2014 survey suggests that residential activity improvements may not be over yet.
The highlight of the 3rd quarter of 2014 FNB Estate Agent Survey was the noticeable jump in the Residential Activity Indicator, which reflects the activity levels perceived by the estate agents surveyed (on aggregate).
The survey is of a sample of estate agents predominantly in SA’s major metro regions. The 1st question asked to agents is with regard to their perceptions of residential market activity in their areas, a subjective question on a scale of 1 to 10, with 10 being the strongest level of activity.
The 3rd Quarter 2014 Residential Activity Indicator rose noticeably, from the previous quarter’s 6.33, to 6.63. This increase would appear to be more than just the usual seasonal rebound as the Summer approaches, with our statistically seasonally-adjusted version of the Indicator also rising from 6.42 to 6.65 over the 2 quarters.
This was an interesting development following on prior quarters in which the pace of improvement in the Activity Indicator had been slowing.
However, from the 2nd quarter to the 3rd quarter, we saw no meaningful improvement in what is currently a healthy balance between supply and demand, nor in price realism. The percentage of agents citing stock constraints remained high at 21%, but slightly down on the prior quarter’s 22%, while the average time of properties on the market at 11 weeks and 4 days was not very different from the prior quarter’s 11 weeks and 6 days. The percentage of sellers having to drop their asking price moved slightly higher from 78% in the previous quarter to 86% , while the estimated average percentage price drop remained unchanged at -8%.
All-in-all, therefore, the main indicators in the survey when read together continued to point to a very well-balanced and solid market, but did not point to any strong market direction from quarter to quarter.
Looking into the near future, while the agents as a group still expect activity levels to increase, they don’t appear overly “exuberant”.
The 3rd quarter 2014 survey points to a noticeable strengthening in agents’ expectations of residential activity levels in the near term. However, with the Summer approaching, most of this positive expectation can be said to be seasonal, and excluding the seasonal factors the agents don’t appear to expect any extreme strengthening.
For agents, activity is crucial. They make a living on buying and selling properties, unlike investors who hold properties for a return. In the 3rd quarter survey, 50% of agents expected activity to increase in the next 3 months, while 49% expected it to stay the same and only 1% expected a decrease in activity. These percentages are nothing out of the ordinary when compared to the corresponding quarters of 2012 and 2013.
In fact, the reading of +0.49 is slightly lower than the +0.63 and +0.58 readings for the 3rd quarters of 2012 and 2013 respectively.
In short, the agents are positive, but not extreme in their near term expectations of activity levels.
When asking agents for the factors influencing their near term expectations, seasonal factors are by far the strongest driver, mostly a positive factor as the traditionally busier summer months approach.
Excluding seasonal factors, we continue to see the significance of stock constraints (lack of stock available to sell) on their thinking.
24% of agents cited “stock issues” as a factor driving their expectations, with 21% experiencing stock constraints and only 3% experiencing too much stock. This is perhaps the key reason why agents are not extreme in their expectations of near term activity levels, because while they perceive a strong market, no stock means no activity in their world.
Interest rates played a bigger role in agent expectations compare with the previous quarter, perhaps not surprising given a July interest rate hike of 0.25 of a percentage point by the Reserve Bank (SARB). However, the influence remained moderate, with only 17% of agents citing interest rates as a factor, and 14% seeing rates as a negative factor. This remains well below the 1st quarter survey where 36% of agents pointed to this, suggesting that the snails pace of interest rate hiking since January has eased the initial “fright” caused by the 1st rate hike in January.
Also perhaps moderating agents’ expectations is “Economic Stress/General Pessimism”, which although was only cited by 8% of agents in the previous quarter’s survey, is above the 3% who pointed to “Consumer Positive Sentiment”. At present, therefore, the agents as a group see neither high levels of consumer confidence nor extreme levels of negative sentiment and economic stress.
Perhaps surprising though, given the significant stock constraints, is that the agents also don’t appear to be “over-expecting” on house price inflation in the near term, anticipating average house price growth of only 4.4% over the next 12 months. One factor that could be contributing to the moderate price growth expectation is the apparent growth in residential building activity in recent quarters, as reflected in the FNB Building Confidence Index. This suggests that stock constraints may soon begin to be alleviated.
In short, therefore, while agents continue to paint a positive market picture, their expectations don’t appear to be overly exuberant or way out of line with what is a currently mediocre economic environment.
Author: John Loos
