Financial stress-related selling declines further, despite last year's small interest rate hikes

The highlight on the “Sell-Side” was a further decline in the percentage of financial stress-related selling….and of course the “oldies” selling.

The 4th quarter FNB Estate Agent Survey pertaining to the selling side of the residential market shows a very strong situation, with a further decline in the percentage of sellers deemed to be “downscaling due to financial pressure”, to 11%, the lowest percentage since this survey question started late in 2007. But South Africa’s growing contingent of “oldies” continues to be the single-most important driver of home sales, as they downscale due to “life stage”.

In the FNB Estate Agent Survey, one of the questions asked of survey respondents is to provide an indication as to the key reasons for selling properties. 8 categories of reasons for selling primary residential properties are provided. They are “Downscaling due to financial pressure”, “Downscaling with Life Stage”, “Emigrating”, “Relocating to Elsewhere in SA”, Upgrading”, “Moving for Safety and Security Reasons”, “Change in Family Structure”(Death, Divorce, etc)”, and “Moving to be Closer to Amenities”

After we had initially thought that the start of interest rare hiking early in 2014 may have meant the end of the improving (declining) trend in financial stress levels, our fears may have been misplaced, or mistimed at least.

Our survey respondents in the 4th quarter of 2014 suggested that financial pressure-related selling (“selling in order to downscale due to financial pressure”), estimated at 11% of total selling, has perhaps not yet finished its declining trend. Prior to the 4th quarter survey, this estimate had been stuck at a higher level around 14-15% over the previous 4 quarters, and this decline to 11% represents the lowest percentage in this category since this survey question started back in 2007. 

This also means that the percentage of sellers under financial pressure remains vastly improved from the 34% peak back in 2009.

A key contributor to the further decline in the percentage of financial pressure-related downscaling, despite some slight interest rate hiking last year, is believed to be the declining trend in the Household Debt-to-Disposable Income Ratio. The Household Sector as a whole is still growing its borrowing at a slow enough rate for it to remain below nominal disposable income growth, thus bringing this all-important indebtedness ratio down. Should the declining Debt-to-Disposable Income Ratio trend continue in 2015, and given our new forecast for no interest rate hiking during this year, it is conceivable that the percentage of financial pressure-related downscaling could decline even further in the near term.

Also “improving” slightly in the 4th quarter is the estimated percentage of sellers downscaling due to financial pressure that are planning to buy a cheaper property versus those planning to rent. In the 4th quarter survey, the estimated percentage planning to “buy down” was 63% of total financial pressure-related sellers, versus 37% intending to rent. This percentage was changed from the 3rd quarter survey, where a slightly lesser 61% had been expected to “buy down”.

Typically, as confidence levels improve, we would expect a greater percentage of this category of home sellers to be buying down and less to be “renting down.
When we first questioned agents on the split between those “financial stress-related downscalers” planning to rent vs buy, back in the 2nd quarter of 2011, they estimated that 51% of this group were planning to rent a home versus a lesser 49% planning to buy. The recent quarters’ estimates therefore reflect quite a radical change from those days, as the residential market has strengthened.

Another key selling group is those households who are financially more solid and are planning to upgrade to a “better” home. The percentage of sellers selling in order to upgrade also appears to have stabilized following a prior steady upward trend. At 18% in the 4th quarter 2014 survey, this percentage remains unchanged for the past 4 quarters, and slightly off its high of 20% reached at the end of 2013.
The most recent percentages, however, continue to, reflect a dramatic improvement from the lows of 7% at stages back in 2009.


The single largest percentage of sellers, i.e. 23% is still believed to fall into the category “Downscaling due to Life Stage” as at the 4th Quarter 2014 survey. This form of downscaling refers to those sellers who desire a smaller home, usually either because they are getting older or because their offspring have left home.

This estimated percentage of 23% is slightly lower than the multi-year peak of 26% earlier in 2014, but remains near “record” highs”, and far above the low of 12% reached back in the 2nd quarter of 2008 in far weaker market times.

We believe this “ageing” group of sellers to be “pro-cyclical” in their behaviour. They are not by-and-large financially stressed, and can thus wait for a “good time” to sell their property. They tend to come out of the woodwork in better market times. Therefore, the currently high percentage of these sellers, continues to be reflective of a relatively strong market.

However, as mentioned in previous reports, this high percentage also has partly to do with South Africa’s ageing population, especially in the middle and upper income groups, with the fastest growing age cohorts being in their 50s and 60s.


Of the 8 categories of selling motives, the 4th one that we like to monitor closely is “Selling in order to emigrate”. This is particularly of interest given that South Africa is stuck in a period of seemingly heightened social tension, and due to the fact that, despite a currently low percentage, our surveys back in 2008 suggested that this motive for selling was one of the largest drivers of residential supply. Periodically, therefore, it can become a more important market driver.

Since around 2011, the emigration-related selling percentage has remained low all the way to 2014. The percentage is believed to have been contained by a period of relative economic and employment weakness abroad in recent years, hampering employment opportunities for aspirant South African emigrants in some of the popular emigration destinations.

As time has progressed, however, these foreign economic conditions have broadly improved, and this may require that domestic sentiment improves if we are to avoid returning to heightened emigration rates and emigration-related home selling.

From a previous quarter’s 2.7% of total sellers, estimated emigration-related selling rose slightly to an estimated 4.2% of total selling in the 4th quarter Agent Survey. While higher, though, one cannot draw conclusions based on one quarter, and 4.2% remains a relatively low percentage by 2008-10 standards.

Nevertheless, this is a category of residential selling that will be watched closely in the next few quarters.


An analysis of the various reasons for selling appears to confirm that we are still currently at a relatively strong stage of the property cycle, although certain categories may have seen their improving trend ending late in 2004.

This conclusion is partly supported by grouping the various reasons for selling into what we perceive to be “Pro-Cyclical Reasons”, i.e. those categories that tend to increase in significance as the economic/property cycle gathers momentum and vice versa in slowdowns , “Counter-Cyclical Reasons”, i.e. those categories that diminish in significance in better economic and market times and increase in prominence in weaker times, and “Non-Cyclical Reasons”, which have no obvious correlation with the economic/market cycle.

We saw an end to the broad rising trend in the Pro-Cyclical reasons for selling, which include Selling in order to downscale due to life stage, selling in order to upgrade, relocating within South Africa, and Selling in order to move closer to work or other amenities. Selling in order to upgrade has settled at around 18% in recent quarters, a little off an earlier high of 20%, although the percentage remains far above the lows of the 2008/9 recession period. The same goes for the percentage of selling in order to “downscale due to life stage”, which at 23% in the 4th quarter remains high, but a little off the 26% of 2 quarters prior. This strong source of selling is to be expected as the middle and upper income groups head down the “ageing population path”, and as they take advantage of a relatively good period in the property market to offload their properties.

But while the key “Pro-Cyclical” reasons for selling may have settled at good levels, the Counter Cyclical component, which is solely “selling in order to downscale due to financial pressure”, saw its broad declining (improving) trend continue up until the end of 2014, and there may even be more “downside” improvement to come in 2015. This is the positive result of a gradual lowering of the Household Sector Debt-to-Disposable Income Ratio, which gradually reduces the vulnerability of the Household Sector to unwanted cash flow “shocks”.