Bugle Sales Talk Editorial

Although formal residential transaction data is delayed the other variables that can be measured at the coal-face such as show day attendance or The FNB Estate Agents Activity Index which is taken from current survey information, are excellent predictors of what the likely near-term trend in GDP growth rates are likely to be. The fact that trend changes in residential property buying activity is so sensitive to the economic environment, means that this measurement can actually lead even the most leading business cycle indicators.

So what is the most recent FNB Estate Agent Activity Index saying? On a year-on-year basis the 3rd quarter measurement declined by -7,4%, which is significant when compared to the growth of 12,2% recorded in the 3rd quarter a year ago. Even though we can describe current residential activity levels as solid the slowing in growth has to be taken note of and used to anticipate what can be expected from economic growth in the near future. So what are the factors that impact on residential property buying behavior? Certainly interest rates or the cost of money plays a large role and the increases in rates since 29th January 2014 from the low of 8,5% we enjoyed from 19th July 2012, to 9%, then to 9,25% on 18th July 2014 and most recently to 9,5% from 24th July 2015, have had some impact.

However to put this into perspective, our last seven year cycle since the peak of 15,5%, which we had between 13th June 2008 to 12th Dec 2008, shows a major downward trend in rates. The slight edging up of rates we now experience is minor compared to where we have come from. Consumer Confidence plays a role and the bottom has fallen out of the consumer confidence measure recently with a -15% decline in the 2nd quarter. Equally Business Confidence as measured by the Bureau of Economic Research in Stellenbosch is down to 38 in the 3rd quarter from a level of 51 in the 4th quarter of 2014, where 50 represents the neutral level and anything below 50 indicates a negative outlook. The recent historical loss by the Springboks to Japan in the Rugby World Cup may well push this index to levels last seen during the "great recession" of 2009.

In addition to the above variables it is interesting how close the movements in Global Industrial Production reflect our local Residential Market Activity Index. This suggests that the residential market's key influences are more than just interest rates and confidence levels. It is interesting to note that the IMF Metals Commodity Price Index has halved since 2011, and as at July this year is 27,1% down in US $ terms on a year-on-year basis. Imagine being invested in the mining sector and trying to run a business when your revenue is halved over a period but your input cost pressure remains.

There is no doubt that the current macroeconomic trend is not favourable. Nevertheless we are still experiencing a surge of families migrating into the greater Ballito area, all of whom are looking to either buy or rent a property.

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

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com