The picture emanating from the sample of estate agents surveyed in the FNB Estate Agent Survey for the 3rd quarter of 2016 was one of weakening, both in market activity levels as well as in the balance between demand and supply. Agent stock constraints have alleviated, and the average time of homes on the market prior to sale has lengthened over the past 2 quarters. These are 2 key indicators pointing to this weakened demand-supply balance
Interestingly, though, was a jump in agents’ perceptions of ”Positive Consumer Sentiment”, which appears to have been overwhelmingly related to what they see as a local government election which went off very well.
• Agents perceived a major jump in “Positive Consumer Sentiment”, based almost solely on successful local government in elections early in August, and despite pointing to further weakening in the market since the 2nd quarter.
• The 3rd Quarter 2016 Residential Activity Indicator declined further to 5.59, from the previous quarter’s 5.77. When one takes seasonal factors out through a statistical seasonal adjustment, FNB’s seasonally-adjusted Indicator also declined from the previous quarter, to 5.65.
• Average estimated number of viewers per show house rose to 10.92, from 9.64 in the prior quarter, but the past year’s trend has been broadly sideways after prior decline back in 2014/early-2015.
• The percentage of agents citing stock constraints as a factor in shaping their near term expectations declined further to a lowly 6.7%, from the previous quarter’s 10.7%, having steadily declined from a high of 24% in the 1st quarter of 2015.
• The market balance has weakened in the past 2 quarters, and the estimated average time of properties on the market has risen from 11 weeks and 1 day in the 1st quarter to 14 weeks in the 3rd quarter.
• Agents reported a slight decline in the percentage of sellers having to drop their asking price, from 92% in the previous quarter to 88% in the 3rd quarter of 2016. This comes after a previous gradual rising trend starting back in early-2015. One quarter’s decline is insufficient to point to a trend change in this percentage though, especially given that the average time on the market has been rising and activity has been declining. The estimated average percentage asking price drop, on those properties where a price drop is required to make the sale, was -7%.
FOCUS: AGENTS POINT TO LOCAL GOVERNMENT ELECTIONS HAVING IMPROVED CONSUMER SENTIMENT, BUT THEY DON’T POINT TO A STRONGER HOUSING MARKET JUST YET.
In the 3rd Quarter FNB Estate Agent Survey, the business confidence in the Residential Industry (which is not the same thing as the Housing Market) was seen being strongly buoyed by the outcome of the early-August local government elections, at a time when nothing very exciting appeared to be happening in the actual Housing Market itself.
The quarterly survey of a sample of estate agents in the 6 major Metros suggests that in South Africa’s current state of almost zero economic growth and heightened social tensions, and seemingly heightened concern regarding the future national direction, political events and policy announcements will perhaps have a far greater impact on markets and sentiment than was the case in past better economic times.
But it is also perhaps reflective of the importance of local government for the smooth functioning of the property market, and if there is an expectation that a local government change will bring about better service delivery, this would understandably buoy confidence amongst many property industry players. The survey was completed through August, most of it after the local government election of early in that month.
FNB has been monitoring 2 strongly sentiment-related survey responses for quite some time. In the survey, the agents are asked, amongst many other questions, to provide their expectation of residential activity levels over the next 3 months. Then, as a follow up we ask them to give an indication of the factors influencing their expectations. It is from this follow up question that we normally find a percentage of them pointing to a perception of “Positive Consumer Sentiment” or on the other hand “Economic Stress/Pessimism”, and we track the percentages for these 2 factors.
On a 4-quarter moving average basis, to smooth out the quarter to quarter volatility and identify the broader trend, FNB had observed a multi-year broad declining trend in the percentage of agents pointing to Positive Consumer Sentiment, commencing late in 2009 as the pace of interest rate cutting at the time began to slow, and lasting all the way to the 1st half of 2016, with interest rates having risen since 2014 and the economy now well into a multi-year growth stagnation.
That economic growth stagnation since around 2012 was not only reflected in deteriorating agent perceptions of consumer confidence, but also in a steady rise in the percentage of agents pointing to “Economic Stress/General Pessimism” from early in 2014, a rise that seems more tied to the onset of interest rate hiking than to the economic growth slowdown, but ultimately should reflect a bit of both.
Then, suddenly in the 3rd quarter 2016 survey done in the month of August, we had a very sharp increase in the percentage of respondents pointing to “Positive Consumer Sentiment”, from the prior quarter’s lowly 8%, to a massive 35.3% of agents. Even on a 4-quarter moving average basis, the percentage rose from 5.2% to 13.3% over the 2 quarters.
Simultaneously, the percentage pointing to “Economic Stress/General Pessimism” suddenly declined from 41.3% of agents in the prior quarter to 7.3% in the 3rd quarter. This arrested the rise in the 4-quarter moving average for this variable too, although not lowering it meaningfully.
This result is interesting, because this sharp swing in direction of both percentages comes at a time where, while there was a very slight improvement in economic growth in the 2nd quarter, which may have some mild positive impact, and interest rates have moved sideways since the last hike in March, the agents generally pointed to further residential market softening in the 3rd quarter survey.
Delving into the detail behind the “Positive Consumer Sentiment” response of the agents one begins to understand that this positive response was largely driven by the outcome of the early-August local government elections.
Only 3.3% of agents perceived Positive Consumer Sentiment due to an improved economy, while only 8.7% of total respondents perceived Increased Buyer and Seller Interest and Activity. Actually, the entire sample of agents surveyed in the 3rd quarter pointed to a decline in overall activity in the market.
So what made the big difference? 24.7% of the agents surveyed perceived the outcome of the local government elections to have boosted consumer sentiment. The feedback was a perception that the election had run successfully, and the situation in the country was more stable following the elections.
It would appear, too, however, that in those major metro regions where local government change had taken place, the perceptions of the agents regarding Positive Consumer Sentiment” were stronger than those where it was “business as usual”.
Therefore, in Ethekwini and in Cape Town, only 9.1% and 10.7% of agents respectively cited a “successful election outcome” as boosting consumer sentiment.
By comparison, in Tshwane Metro, 45% cited this driver of consumer confidence, in Greater Joburg 27.5%, and in Nelson Mandela Bay the estimate was 36.4%.
It is very important to note that this is not a survey of consumers and their confidence levels, but a survey of a sample of estate agents, and it is thus their perceptions of consumer confidence levels in their areas.
Interesting is that the 3rd quarter 2016 Estate Agent Survey pointed to a further decline in the FNB Residential Activity Rating, a further increase in the average time that homes remain on the market prior to sale, and further deterioration in the agents’ perceptions of home affordability.
Therefore, this perception of significantly improved consumer sentiment comes with little actual market improvement, as yet, to back it up.
This response is effectively an improvement in business confidence in the Estate Agent Sector. If the agents are correct, it suggests that in these recent times of heightened volatility and weak economic performance, political and policy-related events are likely to impact more significantly on market and industry sentiment, than was perhaps the case in past periods of stronger economic performance.
Much of the survey would have been completed before the next significant political happening, which relates to reports later in August that Finance Minister Pravin Gordhan was at risk of being arrested. He hasn’t been arrested to date, of course, but was there an impact on sentiment? We will have to wait and see.
So, in the 4th quarter FNB Estate Agent Survey we will be looking for the answer to 2 key questions.
Firstly, was there a genuine improvement in consumer sentiment which is set to impact positively on the housing market, or was it merely a temporary agent perception?
Secondly, FNB will wait to see whether that positive sentiment, if it was real, was quickly reversed by the more recent events. These include the highly publicized reports surrounding the Finance Minister’s possible arrest later in August, renewed weakness in 3rd quarter high frequency economic indicators, and some renewed speculation as to whether that dreaded ratings downgrade is coming SA’s way late in 2016?