Property Talk

People will buy and sell regardless

Prices convey the story of a market - that is why they are so closely monitored by economists, and in the property industry, the banks that are heavily exposed to the property market through their mortgage lending businesses.

The FNB Home Price Index is reported to have grown by a nominal 3,5% for June 2019, a slight uptick from the 3,3% recorded in the prior month. So far for 2019 the 4% nominal price growth level has not been breached.

Rewinding the clock five years at a time, we note that June 2014 yielded a 8,3% year-on-year growth rate, June 2009 a dismal -1,8% negative return (no surprise given the global financial crisis raging at the time) and June 2004 a whopping 33,9%.

Imagine that level of home price growth. With hindsight it is easy to see that the smart money was selling between Oct 2007 and Dec 2007. By March 2008 it was game-over and too late to try and sell in a free-falling market. As with all asset classes timing is important.

The big difference with the housing market however is that everybody needs somewhere to live and our individual life-cycle rhythm does not necessarily fit neatly into the overall property market cycle. People will buy and sell regardless, and this is of-course good news for estate agents.

According to the current FNB property barometer report the dominant reason for selling remains "Downscaling because of life stage" and accounts for 23% of all sales in the 2nd quarter of 2019. Interestingly, but possibly not surprisingly, "downscaling due to financial pressure" has become increasingly prominent in the past year, jumping to 19% in the 2nd quarter from 16% in the 1st quarter of 2019.

This means that households are under financial pressure. Those selling for this reason opt for the rental market rather than a cheaper property. This makes perfect sense as renting costs approximately half the price of owning.

Sadly emigration-driven sales have become prominent in our current landscape measuring 13,4% in the 2nd quarter and 14,2% in the 1st quarter. I say sadly as the loss of families due to emigration selling means the loss of income generating contributors to our GDP and society - often being larger employers within the areas they live.

The reality is that once a person emigrates, there is little chance of them returning to the country. People will always eventually vote with their feet.

In terms of house price growth across the major metros across the country, you will be pleased to know that our Ethekwini region performed best by showing a 5% price growth in 1Q2019.

This compares to Cape Town's 1,2% for the same period, which is the lowest growth experienced in Cape Town since the 2009 financial crisis. The high-end Cape Town suburbs are however experiencing major contractions in pricing with the Atlantic Seaboard experiencing negative growth rates of -5,1% and -2,5% over the past two quarters,

The Southern Suburbs price index contracted by -2,4% in 1Q2019 and the City Bowl by -2% over the same period. Johannesburg's more expensive suburbs are also experiencing negative price growth with Sandton prices retreating by -1,7% year-on-year in 1Q2019.

FNB predict that the second half of 2019 will show some recovery in activity due to a combination of lower interest rates and some improvement in buyer sentiment. This should mean that buyers take advantage of the softer prices.