Property Talk

House Price Index

One of the most important statistics a realtor can monitor is the growth in house prices. This single measure embodies a range of underlying economic fundamentals and is the reason why prices are so important in a market economy as a way of signaling the state of the market. FNB recently published its detailed analysis of its house price index showing growth slowing to 3,5% in August 2018 from 3,9% in July.

This indicates that the correction in house prices in real terms continues which has been evident since 2016. With eight months of data for 2018 FNB are predicting an average house price growth of 3,5% for the current year versus the 4,2% recorded for 2017.

To achieve positive real house price growth FNB estimate that GDP growth would have to be closer to 3% rather than the current 1,3%. The forecast for the period to 2020 therefore remains tightly within the current band of subdued house price performance.

FNB report from their 2nd quarter 2018 estate agent survey that a higher number of sellers are required to drop their asking prices in order to realize a sale - from 91% in the previous quarter to 96% currently. This is a multi-year high from the 78% recorded in 2014.

Similarly the percentage drop in asking price in order to realize a sale has declined from -8.2% in the 1st quarter 2018 to -9,2% in the 2nd quarter. The average time of homes on the market prior to a sale being realized has steadily increased from 11 weeks and 1 day recorded in the 1st quarter of 2016 to the 16 weeks and 4 days currently recorded in the 2nd quarter of 2018.

The reasons people sell their homes is measured and reported by FNB as part of their estate agent survey and provide excellent insight into the cycle of the property market. Of the 8 reasons identified, "downscaling with life stage" remains the most significant and accounts for 24% of all sales.

The next is "change in family structure" which is measured at 16% and relates to families growing, shrinking or splitting. The third most significant reason currently is "downscaling due to financial pressure" accounting for 14.7% of all sales which is up from a multi-year low of 11% recorded in the 3rd quarter of 2014.

This indicates tougher financial times and that people are feeling the squeeze. It often takes people a while to decide to sell their home when faced with financial pressure, which indicates that the financial pressure has been escalating for a period already. "Upgrading" and "moving for safety & security reasons" both account for 11% of sales. "Relocating within SA" accounts for 8% of sales.

Emigration selling currently accounts for 7.8% of sales and has seen a noticeable and steady increase from a low of 2% in 2013 on the back of weakening sentiment in South Africa. The last reason for selling considered is "selling in order to move nearer to work or amenities", which accounts for 6% of all sales.

This type of relocation can typically be postponed in many instances when financial times are tougher. From a peak of 10% of total selling in the 1st quarter of 2014, the estimate for those selling for this motive has declined steadily to its current level.