Property Talk

Author: Andreas Wassenaar
Date: 2014-10-31

If you are a first time home buyer, you are in a very important target market for mortgage origination companies who look to first time home buyers to make up as much as 50% of their business and as a percentage of all property transactions first time home buyers currently make up a significant 26% of all buyers as at the 3rd quarter of 2014. This is marginally down from the 28% measured in the previous quarter but significantly up from the 12% low point measured in 2008. We also know that first time homebuyers are a good barometer for healthy market activity and tend to become more evident with an increase in demand and the upward curve of the property market cycle.

Because first time buyers are so credit dependent, any changes in the cost or availability of finance can be expected to immediately impact on this segment of the buying public. The demand by first time homebuyers can be considered relatively flexible as they can typically decide to rent for longer or stay at home with parents for longer if buying conditions become less favourable. The fact that we are still seeing a high incidence of first time buying activity indicates that the demand is somewhat counter-cyclical to the general economic conditions in the country.

The general surge in demand for property currently being experienced is therefore unexplained by the macro-economic conditions, which have deteriorated during the course of the year. We therefore see a confidence in residential property, relatively good access to credit from the major commercial banks who have not noticeably tightened their credit criteria as interest rates have started to increase. The FNB Estate Agent Survey looks at changes in the behavior of first time buyers and reports that 37% of first time buyers do generally have the deposits required by the banks and are more educated and aware of what it takes to qualify for a home loan.

As many as 26% of agents surveyed thought that the banks have become more lenient and that more 100% loans are being made available. An interesting new statistic coming out of the survey is the percentage of 1st time buyers that they believe are buying because of fears of house price increases in the future. It is estimated that 35% of 1st time buyers fell into this category in the 3rd quarter of 2014. This "buyer panic" reason can become a source for property market bubbles and is potentially unhealthy for an asset market.

First time home buyers are often single and the statistic tracking couples buying versus single people buying is of interest. This has been recorded as currently around 20% in favour of single people buying, which is up from 13% in 2010. This tends to suggest a strong single buyer percentage supporting the first time buyer profile.

The likely prediction expressed by FNB for the near term future is that as interest rates increase over the next year, first time buying as a percentage of overall buying can be expected to decline. The extent to which this happens will be driven by general economic growth rates and the extent to which the Reserve Bank increases interest rates over the next year.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Seeff KZN Chairman

Principal - Seeff Dolphin Coast

andreasw@seeff.com

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