Earlier in 2016, The FNB Estate Agent Survey had begun to record a mild weakening in agent perceptions of home maintenance and upgrades, following a broad improving trend through 2013 to late-2015. However, in the most recent 4th Quarter 2016 survey, FNB saw a perceived stronger level, suggesting that the Renovation and Maintenance Market may not quite be done yet.
Using a 2-quarter moving average to smooth the data mildly, FNB depicts agent perceptions regarding levels of home maintenance, and they have 5 categories/levels of home maintenance and upgrades in the survey.
The “top” level is that of “Value Adding Home Upgrades”. After slowing from 26% of home owners perceived to be making “value adding upgrades” to their homes late in 2015, to 18.5% by the 3rd quarter of 2016, the 4th quarter 2016 saw a renewed increase to 22.5%.
FNB expected the decline in the level of these costly value adding upgrades to continue, given the tough economic times that we are in, but perhaps such expectation will be proved to be a bit premature.
The next level “down” is the percentage of home owners “fully maintaining their property and making some improvements”. This category did continue its recent decline, from 42.5% for the 2 quarters up to and including the 4th quarter of 2015, to 32% by the 4th quarter of 2016.
The following level down, namely the “percentage of owners not improving but still fully maintaining homes”, rose mildly, from 26.5% in the 3rd quarter of 2016 to 30% by the 4th quarter.
This all translates into a recent decline in the category that one would always like to see being low, i.e. the “percentage of homeowners attending to basic maintenance only”, a level which in effect means the home will “go backward” over time. This estimated percentage was 17.5% for the 2 quarters up to and including the 3rd quarter of 2016, after having risen in previous quarters, but encouragingly it has receded in the 4th quarter of 2016 to 13%.
Those owners allowing their homes to “get run down”, in the areas surveyed, remained a fairly insignificant 2% in the 4th quarter.
The increase in the highest category of home investment, namely “Value adding upgrades”, along with a decline n the low category of “Only attending to basic maintenance”, in the 4th quarter of 2016, has contributed to a renewed increase in the FNB Home Investment Confidence Indicator following a few prior quarters’ decline.
This indicator is represented on a scale of -1 to +3. Having declined from a multi-year high level of +1.79 in the 3rd quarter of 2015 to 1.55 by the 3rd quarter of 2016, the indicator then pleasantly surprised with an increase in the 4th quarter of 2016 to 1.67.
Examining a different source of data, namely “Additions and Alterations” data from StatsSA, there also appeared to be something of a rebound in activity late in 2016. For the 3 months to November 2016, Square Metres of Additions and Alterations Plans Passed grew by +3.89% year-on-year following a prior period of negative growth. And Square Metres of Additions and Alterations Competed rebounded to 16.4% year-on-year growth for the 3 months to November, up from 4.4% for the 3 months to October.
This late-2016 apparent rebound in home maintenance and upgrades appears visible in Retail Sales figures too. As at November 2016 we still saw relatively strong real sales growth of 5.4% year-on-year in Hardware, Paint and Glass Product Retail.
There is little “over-exuberance” in the Home Upgrades market though. The agents do estimate 15% of upgrades in their areas to be speculative, but the overwhelming majority are “making improvements for their own use (79%)”. There is an estimated 6% who make improvements because they “can’t afford to live elsewhere”, but this group is tiny compared to 26% back in 2006, reflecting a significantly more affordable housing market these days compared to 2006.
The Home Maintenance and Upgrades market has held up relatively well during weak economic times. One positive contributing factor may have been the very slow and moderate interest rate hiking pace of the SARB from early-2014 to early-2016, engineering something of a “soft landing” in the economy while enabling households ample time to adjust to higher rates. So, while weak economic growth has indeed led to financial constraints in the Household Sector, FNB has not seen a noticeable increase in the levels of financial stress to date. So, while households have indeed cut back on Durable Consumer Spend in general in recent years, home maintenance and upgrade levels have not been a major casualty to date
A further key contributing factor, however, may have been the very low cost inflation in the area of home maintenance-related consumer price inflation. The Consumer Price Index for Home Maintenance rose by a mere 0.3% year-on-year as at December, while the Retail Price Inflation Rate for Hardware, Paint and Glass Products was also a very lowly +0.9% as at November.