Q2 Property Barometer

Herewith salient points in the FNB Residential Property Barometer for Q2: 

June HPI ticks up, estate agents now upbeat about near-term activity
- The FNB HPI trended up in June, recording 3.5% y/y from 3.3% y/y in May, taking the average half-year nominal house price growth to 3.4% y/y, marginally worse than the 3.5% y/y recorded in the same period in 2018. Across price segments, lower-value bands (i.e. bottom 40% of the price distribution) are faring relatively better than their higher-value counterparts (top 40% of the price spectrum). Market volume data, however, suggests that growth has been biased towards the higher-value bands in the first half of the year.
- Mortgage advances grew faster in May, recording 4.2% y/y up from 4.0% y/y in the previous month. This is the highest increase since July 2016. To date, mortgage extension has averaged 4.1% y/y, compared to the unsecured credit category which has averaged 9.6% y/y.

The 2Q19 FNB Estate Agents Survey results

Summary:
- Agents perceived market activity to have marginally deteriorated in 2Q19, which can be attributed to elections-related despondency. Supply-demand imbalance in favour of buyers was perceived to have persisted, as supported by a marginal rise, from 95.3% to 98% in the second quarter, in the percentage of sellers having to drop their asking price. Furthermore, the average price drop edged up moderately to 9.9%, above the historical average of approximately 9.0% since 2010, all consistent with a market in favour of buyers.
- In addition, the survey results reveal that the average estimate for "serious viewers per show house prior to sale" was 9.4 viewers per show house in 2Q19, from 10 in the prior quarter. This still lags below the historical average of 11.9 viewers since 4Q06, suggesting that buyer enthusiasm is still relatively slack. 
- Nevertheless, the average time of homes on the market improved to 14 weeks and 1 day, from 15 weeks in 4Q18, possibly as buyers rush to take advantage of bargains. This is significantly lower than the most recent peak of 17 weeks and 6 days in 3Q18 and edging closer to the long-term average of 13 weeks and 4 days (since inception of the survey question in 4Q04).

Reasons for selling: 
- Survey data shows that "Downscaling because of life stage" dominates as the most prominent reason for selling a property in SA, with such sales accounting for 23% of all sales in 2Q19, the same as in 1Q19. Concerningly, "Downscaling due to financial pressure" has become increasingly prominent in the past year; the estimated proportion of such sales jumped to 19% in 2Q19 from 16% in 1Q19. This is consistent with our view that household finances are under pressure. 
- Of those who sell due to financial pressure, around 60% now opt for the rental market, as opposed to a cheaper property. However, these trends do not appear to have benefited the rental market yet, as flat vacancies have continued rising and rental inflation is still muted. 
- Emigration-driven sales have become a more prominent feature of the housing market in South Africa over the past two years. According to estate agents, these are estimated to have steadied at around 13.4% in 2Q19, marginally down from 14.2% in 1Q19. This trend is more prevalent in the higher end of the market, although appears to have spilled over to the lower ends as well. The spike in the lower and middle ends could, in part, be explained by upper-income owners disposing of their investment properties.

Outlook
- Positively, however, agents' outlook for the next three months has shifted to general optimism, from neutral in the last two quarters. At these levels, estate agents are as upbeat about near-term market activity as they were in in 1Q18, following a change in political leadership.

Article courtesy FNB Property Barometer