Research

Lack of growth in 2017’s home maintenance and upgrade levels

Throughout 2017, there was lack of growth in the levels of home maintenance and upgrades, according to FNB.

The agents surveyed interpreted average home maintenance and upgrade levels to be stronger last year compared to 2016. The quarterly picture (from various data sources) portrayed slight weakening in the levels of home maintenance and upgrades for 2017, as a whole.

The FNB Estate Agent Survey recorded a very mild weakening in agent perceptions of home maintenance and upgrades levels from the start of 2017 to the end of the year.

Using a two-quarter moving average to smooth the data mildly, FNB depicts agent perceptions regarding levels of home maintenance, and they have five categories/levels of home maintenance and upgrades in the survey.

The ‘top’ level is that of ‘Value Adding Home Upgrades’. This category showed a mild improvement from 25% in the third quarter to 25.5% in the final quarter of 2017, but was slightly below the 26% registered in the first quarter of 2017.

The next level ‘down’ is the percentage of home owners ‘fully maintaining their property and making some improvements’. This category has seen a decline through 2017, from 36.5% for the two quarters up to an including the first quarter of 2017, to 31% in the third quarter of 2017, and further down to 30.5% in the final quarter of the year.

The following level down, namely the ‘percentage of owners not improving but still fully maintaining homes’, has seen a slight rise through 2017, from 27.5% in the first quarter of 2017 to 31% in the fourth quarter of 2017.

This has translated into a mild rise over the course of 2017 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 9.5% for the two quarters up to an including the first quarter of 2017, but ended slightly higher at 11% in the final quarter of the year (although slightly down from the third quarter’s 12%).

Those owners allowing their homes to ‘get run down’, in the areas surveyed, returned a still fairly insignificant, though higher, 2% in the fourth quarter of 2017, up from 0.5% in the first quarter of the year.

A slight rise in the two lower categories ‘only attending to basic maintenance’ and ‘allowing homes to get run down’ since the start of 2017 may have suggested some rise in the levels of financial pressure, constraints, or merely greater financial caution. But the broad deterioration from start to finish of 2017 was only a small one at worst.

FNB Home Investment Confidence Indicator edges slightly lower

The slight decline in two of the highest three categories of home investment, ‘Value Adding Upgrades’ and ‘Maintaining and making some improvements’, from the start to the end of 2017 (and rise in the lowest two categories over the same period) has contributed to a three-quarter decline in the FNB Home Investment Confidence Indicator, following on a prior rise late in 2016, from 1.74 in the first quarter of 2017 to 1.67 by the final quarter..

This indicator is represented on a scale of -1 to +3. The indicator had a steady increase over the 2013 to 2015 period, to reach a level of +1.79 in the third quarter of 2015, but has receded since then.

Hardware retails points to weakening in home maintenance and upgrades too 

A further hint of a mild stagnation in the level of home maintenance and upgrades also emanates from a view of growth in Real Retail Sales by Hardware, Paint and Glass Products Retailers.

Using a three-month moving average for smoothing purposes, this category of real retail sales declined slightly by -0.8% year-on-year for the three months to November 2017.

Reasons for making home improvements 

With regard to the reasons for why people undertaking home improvements are doing it, FNB’s agent survey pointed to the speculative building motive being a less significant 15% of total home improvements for the two quarters up to the fourth quarter of 2017, compared with 18.5% as at the first quarter of last year.

The overwhelming majority of 69.5 still do the improvements for their own use, while 16% do it because they ‘can’t afford to buy elsewhere’. The latter motive had risen from 10% at the start of 2017.

Finally, viewing StatsSA Building Statistics up until November 2017, FNB have recently witnessed a mild year-on-year decline in square meterage of residential building additions and alterations plans passed as well as those completed. Plans passed declined by -3.71% year-on-year for the three months to November, while completions declined by a more significant -13.5% in the same period. This appears to be further evidence of mild weakening in the ‘Maintenance and Upgrades’ market recently.

Conclusion

Various data related to the Home Maintenance and Upgrades market showed mild weakening from the start to the end of 2017. Not only were agents returning mildly weaker home maintenance and upgrade survey responses in the fourth quarter of 2017, compared to the first quarter of the year, but both Hardware Retail Sales data as well as Building data all showed some mild year-on-year decline late in 2017, seemingly supportive of the estate agent perception.

The situation remained significantly better than 2008/9 recession levels, but was seemingly softened through the year by weak economic conditions in 2017. Weak and uncertain economic and financial times, as 2017 had become compared to prior years, can lead to consumers cutting back on unnecessary expenditure, or postponing certain less urgent expenditure items. Home Maintenance and Upgrades often falls into the latter category of ‘less urgent’ expenditure items than, say for instance, basic foods spending.

However, the recent mild deterioration in the Home Maintenance and Upgrades market may be halted in 2018, with Leading Business Cycle Indicators having recently been pointing to possible economic strengthening in 2018, which in turn supports mildly stronger employment creation and Household Disposable Income growth.

Read more here: FNB Property Barometer – Residential Maintenance and Upgrades – January 2018