FNB 3rd Quarter 2011 Estate Agent Survey By Segment
Category Latest Press Release
FNB ESTATE AGENT SURVEY BY SEGMENT POINTS TO THE “MIDDLE INCOME” SEGMENT HAVING THE MOST SOLID “FUNDAMENTALS OF THE “SUBURBAN” MARKETS, BUT THE MORE “TOWNSHIP-DRIVEN” AFFORDABLE SEGMENT STILL APPEARS TOPS IN TERMS OF HOUSE PRICE GROWTH
The FNB Estate Agent Survey by income segment focuses largely on the highly-traded “suburban” housing markets. For the 3rd quarter of 2011, the survey continued to show agents surveyed in “Lower and Middle Income” areas being more optimistic in terms of their perceptions of demand strength in their areas, but it would appear that demand strength in “Middle Income” areas has recently overtaken that of Lower Income areas to achieve the best rating of all 4 segments.
The survey asks agents to place the areas that they serve into one of 4 categories, i.e. High Net Worth areas (average price = R4.8m), Upper Income areas (average price = R2.7m), Middle Income areas (average price = R1m), and Lower Income areas (average price = R720,000). We make use of 2-quarter moving averages when depicting segment results, in order to boost sample size. The Middle Income segment was the only one to show a mild demand rating rise in the 2 quarters to Q3 2011, thus becoming the segment with the strongest demand rating of 6.07. The Lower Income segment follows closely with a rating of 5.91, although this represents a weakening on the previous reading, while the Upper Income (5.61) and High Net Worth (5.25) segments show noticeably weaker demand ratings. Through 2010 and 2011, the High Net Worth segment’s demand rating has been noticeably weaker than the other 3 segments, whose ratings have generally been more closely grouped together.
Using the average time of homes on the market prior to sale as a proxy for the balance (or imbalance) between demand and supply, the 2 higher priced segments once again show a weaker situation than the more affordable two. One must interpret this result with caution however, as higher end homes do typically have a longer time on the market even in healthy times. However, we did see a noticeable widening in the gap between the High Net Worth segment average time on the market during the winter and the other 3 segments, with average time of the High Net Worth segment being the only one to show an increase (deterioration). The Lower Income segment remains at the shorter time end of the spectrum, averaging 13.4 weeks for the 2 quarters to Q3 2011, and the High Net Worth segment remains at the longer time end of the spectrum on 20 .5 weeks, But the most noticeable decline (improvement) in average time on the market during the 2 winter quarters took place in the Middle Income segment, which came to average only a very slightly longer time on the market than the Lower Income segment, i.e. 14.2 weeks.
The most recent survey also points to some improvement in financial strength of home owners during the winter quarters. The Middle Income segment saw a slight rise in its 2-quarter moving average percentage of sellers selling in order to downscale due to financial pressure, from 21% previous to 22% for the 2 quarters to Q3 2011. All 3 of the other segments, however, saw a decline in this percentage, with the Upper Income segment now recording the lowest percentage of sellers selling in order to downscale due to financial pressure, i.e. 20%, and the Lower Income segment recording the highest percentage, i.e. 28%.
However, that is only part of the “financial strength picture”, with the other part being the percentage of sellers selling in order to upgrade. Here, the Middle Income segment comes out significantly higher in the survey, with 18% of sellers believed to be selling in order to upgrade, compared to 16% in the case of the Upper Income segment, 15% for the Lower Income segment and 13% in the High Net Worth segment.
In order to give a rudimentary estimate of the overall financial strength of each segment, we subtract the percentage upgrading from the percentage downscaling, to get to what we term “net financial strength-related downscaling”. Here, the Middle Income segment has the lowest percentage of “net financial strength-related downscaling” of 3.5% of total selling. This is followed by the 4.5% of the Upper Income segment, while the High Net Worth (9%) and Lower Income (13.5%) segments now appear to have the weakest financial strength.
Looking at house price trends by segment in major metros, we are not yet seeing these “superior fundamentals” reported in the Middle Income segment filter through into relative price growth performance. According to the FNB Major Metro Value Band House Price Indices, Middle Income Metro Areas (average price = R1.108m) still showed the lowest year-on-year price growth of 3.2%, while the Lower Income Areas’ (average price = R723,647) average price rose by a slightly faster by 3.8%, and Upper Income Areas (average price = R1.906m) showed a 4.0% increase.
What is noticeable in the price indices, however, is that our Affordable Areas’ (average price = R383,209) House Price Index continued to noticeably outperform the other 3 closely grouped indices, with price growth of 7.1% year-on-year in the 3rd quarter. The Affordable Area House Price Index is strongly driven by former “township” regions, and thus falls largely outside our estate agent survey which is dominated by the highly-traded “suburban” areas.
In summary, therefore, The FNB Estate Agent Survey suggests that the Middle Income Metro Market Segment, where house prices average near to R1m, showed the strongest “fundamentals” of the 4 “suburban” income segments during the 2 winter quarters. This “Middle Income” segment was the only segment to show a strengthening in its agent demand rating for the 2 quarters to Q3 2011. By comparison, the High Net Worth segment appears to show the weakest market fundamentals.
As yet, however, we have not seen the Middle Income segment’s year-on-year price growth outperforming any of the others as of late, according to the FNB Major Metro Value Band House Price Indices, but price growth changes can often come with something of a lag. Rather, we see Affordable Segment house price growth still significantly higher than the rest, a segment which includes much of SA’s former township regions and where supply has typically been more constrained.(Courtesy of John Loos Property Market Strategist FNB)
Mike Bennett
