Seasonal factors excluded, Agents point to Residential Market Activity moving sideways from the previous quarter but down on a year ago. But stock constraints remain significant and the market is still well balanced.
In FNB’s April edition of Property Monthly, they mention of certain economic indicators appearing “less weak” in recent months, compared with last year. For one, both of South Africa’s Composite Leading Business Cycle Indicators, i.e. the SARB version and the OECD version, still showed year-on-year decline as at January, but this rate of year-on-year decline had diminished in magnitude since late in 2015. The FNB Valuers had also pointed to residential demand having slowed in recent times, but residential supply-side constraints being key in sustaining a still well-balanced market despite this demand-side slowing.
Perhaps FNB are seeing something similar in the 1st Quarter 2016 FNB Estate Agent Survey, where some of the numbers either “treaded water” or even improved. However, the existence of strong 1st quarter seasonal factors means that the numbers require cautious interpretations.
In the survey, the sample of estate agents surveyed pointed to market activity levels rising during the 1st quarter of 2016. However, this is believed to be almost wholly due to positive seasonal factors, with February survey month typically being a strong seasonal one.
On a scale of 1 to 10, the 1st Quarter Residential Activity Indicator rose to 6.39, from the previous quarter’s 6.02. However, when one takes seasonal factors out through a statistical seasonal adjustment, FNB sees that their seasonally-adjusted version of the Indicator remained unchanged on the prior quarter at 6.12. FNB would thus attribute the quarterly rise in the Activity Rating purely to seasonal factors.
The year-on-year rate of decline in the Activity Rating measured -5.1%, after the previous quarter’s -8.9%. Therefore, while activity may have treaded water from quarter to quarter on a seasonally adjusted basis, it had still declined noticeably since the corresponding quarter a year ago.
Other key indicators from the FNB Estate Agent Survey point residential demand having slowed over the past 2 years or so, but nevertheless to a still-good balance between supply and demand in the residential market.
When agents are asked to estimate the average number of serious viewers per show house, they perceived a mild increase to 11.6 viewers in the 1st quarter 2016 survey, up from 11.29 in the previous quarter.
Eliminating possible seasonal influences by comparing this average with the corresponding quarter of 2015, it was also at a slightly higher level compared with an estimated 11 viewers in that quarter. That suggests some “treading of water” in terms of this indicator of residential demand during the 1st quarter, seasonal factors aside. However, these recent levels are significantly down on a high of 16,69 viewers reached in the 2nd quarter of 2013. This survey response is believed to be a residential demand-side indicator, suggesting slower demand compared with 2013/2014 levels, but no noticeable deterioration in the 1st quarter of 2016 compared with the previous quarter.
The agents implicitly explain part of the reason why residential demand is off the highs of 2013/14 when they answer the question related to home affordability. Whilst they don’t perceive affordability levels to have deteriorated severely, their affordability perceptions in recent quarters were on average noticeably worse in than in 2014. This could largely be explained by rising interest rates since early-2014.
But while the market appears to be off its demand highs of recent years, the agents continue to point to significant residential supply constraints, which are believed to be key in sustaining a still well-balanced market.
One of the indications of supply side constraints comes out in a significant percentage of agents that continues to point to “stock constraints” as a key issue in shaping heir near term expectation of residential activity levels.
In the 1st quarter of 2016 survey this percentage of agents citing stock constraints rose once more, after 3 prior quarters of decline, from 13.4% in the final quarter of 2015 to 17.3%. This remains significant, despite being down on a multi-year high of 24% in the 1st quarter a year ago.
Therefore, despite the indications of demand being lower on a year to 2 years ago, to date the impact on the market balance doesn’t appear to have been severe, if one looks at potential indicators of the balance between supply and demand or of “price realism”. The estimated average time of properties on the market actually declined slightly, from a previous quarter’s 12 weeks and 1 day, to 11 weeks and 1 day in the 1st quarter of 2016, having hovered at these levels since back in 2014. This continues to reflect a good market balance, and we see the reported supply-side constraints as being a key contributor to this balance.
A concern emanating from the survey, although not necessarily surprising, has been a noticeable rise in the percentage of respondents pointing to “Economic Stress/General Pessimism in the market, along with a decline in those perceiving “Positive Consumer Sentiment”, in recent surveys.