Property Barometer – First Time and Age Group Buying

Through 2017, the FNB Estate Agent Survey estimated that the average first time home buyer level was 20.27% of total home buying for that year. This is nearly at the same level as the 20% average for 2016, a more-or-less sideways move last year. After noticeable declines in the prior two years, this ‘stabilization’ in the first time buyer rate has much to do with the strong first time buyer rate in Gauteng which reflects the region’s superior home affordability levels, compared to other major metropolitan areas. 

Following the onset of interest rate hiking in early 2014, FNB saw the highly cyclical group of first time buyers diminishing in significance relative to the total home buying market.

This is typical, given that on average, younger aspirant home buyers should be far more dependent on credit to invest in property and thus much more sensitive to interest rate charges than older, repeat home buyers.

In 2017, the interest rate cycle turned slightly, with a lone interest rate cut of 25 basis points in July after a long sideways interest rate move since early 2016. This mild turn in the cycle appears to have been just enough to have stabilize the first time buyer percentage, which at an average of 20.27% of total home buying in 2017, was very slightly higher than the 2016 average.

2018’s stable interest rate environment could see this percentage moving more-or-less sideways again or, even slightly upward should interest rares decline further.

Whilst the national average move was more-or-less sideways at a reasonably solid level near 20%, some major divergences have opened up on a ‘Major Metro Region’ level and these divergences, within the same interest rate environment for everyone, appears strongly reflective of major home affordability differences by region.

Gauteng outperforms significantly 

Gauteng is the driver of the slight national average first time buyer percentage increase in 2017 with both of the province’s major metropolitan regions seeing increases in their percentages.

Greater Johannesburg saw an increased average first time buyer percentage, from 21.6% in 2016 to 25.9% in 2017, whilst the Tshwane region went from 23.75% to 26.7% over the same period.

FNB believes that these percentages, both strong and above the national average estimate, is due to Gauteng being the most affordable major residential region, when affordability is considered as average house price relative to average household income. The province has had low house price growth (often negative in real terms) in recent years, enabling it to achieve further affordability improvements. It is this superior home affordability in Gauteng which, FNB believes, may make the region the relative ‘out performing’ housing market in 2018.

In the coastal metros, the first time buyer picture appeared less positive last year.

Although not extremely weak, both Ethekwini and Nelson Mandela Bay saw declines in their average estimated first time buyer percentages, Mandela Bay from 19.6% in 2016 to 17% in 2017 and Ethekwini from 20.5% to 14.7% over the same period, both undershooting the national average.

The most severe decline in estimated first time buying levels, took place in the City of Cape Town. The region’s strong house price growth (in recent years) has been well-documented and, with such superior house price growth, has become a significant home affordability deterioration. FNB believes that a sharp decline in its first estimated first time home buying percentage is strongly reflective of this affordability deterioration.

The region’s annual 1st time buying percentage has been below the national average for 9 consecutive years, but has diverged far more significantly from the national average since 2016, after it fell sharply from 18.39% in 2015 to 12.8% in 2016, and then further to a mere 7.5% in 2017.

Average bonded buyer age also appears to reflect a more affordable Gauteng

Using deeds office registration data, the estimates by province of the average age of bonded home buyers appear supportive of the notion of superior Gauteng home affordability. The estimated average age of a bonded home byer was 36.95 years in Gauteng, the lowest average age of any of the nine provinces. Mpumalanga came close to this average. The three major coastal provinces continued to show significantly higher average ages for bonded home buyers, 39.3 years in the case of the Eastern Cape, 39.1 years in the Western Cape and 39 years in the case of KZN.

To sum this all up, first time home buying levels appear to have achieved some stability last year, after previous years of weakening. FNB believes that this stabilization has much to do with the gradual turn in the interest rate cycle after prior hiking from early 2014 to early 2016. The most significant feature is a large regional divergence between the top performing Gauteng Metro regions and the very weak first time buyer levels in the City of Cape Town, which FNB believes reflects a significant home affordability deterioration in Cape Town in recent years. Strong first time buyer levels in Gauteng could be a contributing factor to that region’s residential market becoming the relative ‘out performer’ this year.

Read more here: Property Barometer – Demand Conditions – First Time & Age Group Buying – January 2018