Property Barometer – first time and age group home buying

A key early indicator of a residential demand strengthening can be a rise in first time buying. First time buyers are highly sensitive to the economic and interest rate cycles, especially the latter. This is because of the high dependence of this younger group of aspirant buyers on credit to buy homes.

Given the first time buyer group’s being more financially constrained than many older repeat home buyers, changes in overall housing affordability, as determined by the combination of interest rates, income and house price levels, are thus very important to this group.

Recently, FNB has seen housing affordability beginning to improve on a national basis. Interest rates haven’t risen further for almost 1 year, while average house price inflation has slumped to a mere 0.8% year-on-year by February 2017, a growth rate far slower than both consumer price inflation as well as average household income growth, implying declining house prices in “real” terms.

The net result, FNB believes, should be some increase in the rate of first time buying when expressed as a percentage of total home buying in recent times.

Early signs from the FNB Estate Agent Survey are that this may be starting to take place.

After a multi-year low estimate of 18% of total home buying as at the 3rd quarter 2016 FNB Estate Agent Survey, the percentage of buyers believed to be first time buyers has risen for 2 quarters to 21% by the 1st quarter of 2017 survey.

In the grander scheme of things, this is not a major rise yet, and the quarter to quarter movements can typically show some volatility, but it is conceivable that this is a sign of the start of a rise in 1st time buying levels, and FNB could see some further mild increase in the next few quarterly Estate Agent Surveys.

This latest first time buyer percentage, however, remains significantly below the 28% high reached in early-2014.

On a major regional basis, FNB are perhaps seeing just how significant the impact of housing affordability changes can be. It is old news that the Western Cape, and especially the City of Cape Town Metro, has had a far stronger housing market than the rest of the country, and thus far stronger house price growth in recent times. This, FNB believes, is key to a recently very low 1st time buyer percentage in Cape Town.

Whereas the slower markets of Joburg and Tshwane had estimated first time buyer percentages of 27% and 21% respectively for the 2016/17 summer quarters, Cape Town had a far lower 8% estimate for the same 2 quarters.

This regional differential perhaps demonstrates just how sensitive the first time buyer population group can be to affordability challenges, and for these younger buyers, Cape Town appears to be proving a home buying challenge.

This would suggest that the currently very low house price inflation (outside of the Western Cape) in much of the country could strengthen 1st time buying, provided interest rates remain unchanged as is the FNB expectation through 2017.

Using Deeds data to examine individuals’ (“Natural Persons”) property buying by age cohorts, however, FNB does not yet see any meaningful increase in the younger 20-29 and 30-39 groups from where many first time buyers come.

The 20-29 year age group saw its percentage of total property registrations rise very slightly from a low of 11.98% for the 3 months to November 2016, to 12.11% for the 3 months to January 2017. However, the 30-39 year age group percentage declined slightly from 29.5% to 29.1% over the same period, meaning no reversal yet in the declining trend of under 40 aged buyers.

Therefore, early signs of a possible rise in younger 1st time buyer levels in the Estate Agent Survey, but no confirmation yet in deeds data.

Read more here: Property Barometer – Demand Conditions – First Time Buying – March 2017