Estate Agent Activity Rating Hints at an Economy Slowly ‘Bottoming’
In the 4th quarter 2016 FNB Estate Agent Survey, the sample of estate agents surveyed point to a slight improvement in activity levels in the residential market. But the level remains weak, and it is too early to say whether this one quarter rise is merely “noise” or the start of a strengthening trend. On a year-on-year basis the rate of change remains negative.
FNB Estate Agency Survey Market Activity Rating
The FNB Estate Agent Survey is a survey of a sample of estate agents predominantly in SA’s major metro regions. A key question asked to agents is with regard to their perceptions of residential market activity in their areas, a subjective question on a scale of 1 to 10, with 10 being the strongest level of activity.
The 4th Quarter 2016 Residential Activity Indicator rose slightly to 5.75, from the previous quarter’s 5.59.
Quarter-to-quarter fluctuations, however, can be driven to a significant degree by seasonal factors prevalent in the housing market. To examine the strength of the market excluding seasonal factors, FNB creates a statistically Seasonally Adjusted Activity Rating. According to this measure, too, the Activity rating rose slightly in the 4th quarter of 2016, from 5.68 in the previous Quarter to a level of 5.8.
A one quarter upward move is not yet significant, and the 5.75 Activity Rating remains well below the 6.73 high reached in early-2015 before a lengthy slide set in.
Show House Viewer Estimates May Hint That Weakening Market Trend is Bottoming Out
However, the survey may well give hints that estate agents are seeing the weakening trend “bottoming out”. The 2015/16 decline in the Activity Rating appeared to be largely demand driven, weakened by slowing economic growth rates as well as rising interest rates through 2014 to early-2016.
One indicator of residential demand in the survey is where FNB asks respondents in the survey point to estimate the average number of “serious viewers” of show houses prior to sale.
Following a decline from a 16.69 average in the 2nd quarter of 2013 to a lowly 9.31 in the 3rd quarter of 2015, FNB has seen a broad sideways (as shown by a 4-quarter average trend line) move in this average number of serious viewers, ending 2016 on 10.99.
Year-on-Year Rate of Decline in Activity Diminishes … As do Rates of Decline in Leading Business Cycle Indicators, Hinting at a Slightly Better Economic Time to Come
In year-on-year rate of change terms, the FNB Estate Agent Survey’s Activity Rating remained in decline in the 4th Quarter of 2016, but that rate of decline diminished from -9% in the prior quarter to -4.5%.
Using a statistically smoothed rate of change, FNB also sees some diminishing in the rate of decline in the 4th quarter of 2016.
The smoothed year-on-year percentage change in the Residential Activity Rating is often a useful leading business cycle indicator, either leading or coinciding with the Leading Business Cycle Indicators for South Africa. So, a slight diminishing in the rate of decline in the Activity Rating, coinciding with such a diminishing in the rate of year-on-year decline in the OECD Leading Business Cycle Indicator for South Africa, hints at early signs of a slight improvement in the South African economy starting up.
But Actual Transaction Volume and Mortgage Lending Trends Lag the Activity Rating’s Moves, Suggesting that these could still be in the Doldrums for a Whilvolumes
However, a 1 quarter improvement in the Activity Rating doesn’t yet mean a lot, and it would take significant further improvement in activity levels in order to see any meaningful growth acceleration in house prices or in new mortgage lending.
New mortgage lending trend changes normally only follow a Activity Rating growth trend change with a considerable lag time.
Therefore, even should Residential Activity gradually be turning, new mortgage lending could still be in year-on-year decline for the 1st half of 2017.
As at the 3rd quarter of 2016, the SARB data for the value of new residential loans granted was in year-on-year decline to the tune of -11%.
Using Deeds data, FNB estimates that the year-on-year rate of decline for total volume of property transfers by individuals (“natural persons”) had reached -11% by the 3rd quarter of 2016. The rate of decline in that portion of the transfers that were bonded had reached -4.6%.
In short, the 4th quarter showed estate agents surveyed in the FNB Estate Agent Survey as perceiving a slightly stronger level of activity in the market even excluding seasonal factors. However, while there may be early signs of an improving economy to come in 2017, and with it improving residential activity, it will probably take some time before we return to some meaningful positive growth in actual transaction volumes and mortgage lending volumes in the Residential Market.