The FNB Holiday Towns House Price Index has had a reasonably good run since 2013. This index consists of towns – both coastal and inland – whose housing markets are deemed to be strongly driven by holiday home demand. The last two quarters of 2017, suggests that they aren’t quite done yet.
After having lost some growth momentum earlier in 2017, the FNB Holiday Towns House Price Index saw a small renewed year-on-year growth acceleration in the latter half of the year. From a revised 5.5% year-on-year growth rate in the prior quarter, the index’s growth rate accelerated to 5.9% in the final quarter of 2017.
This was the second consecutive quarter of mild growth acceleration, following prior slowing.
This means that, of late, Holiday Town house price growth slightly exceeds the National average house price growth rate.
When FNB compiles a National House Price Index based on the same repeat sales methodology of the Holiday Towns Index (note that this deeds data compiled national index is not the same as their monthly FNB House Price Index, which runs off FNB data according to a different methodology), that index inflated at 5.0% in the fourth quarter of 2017. This growth difference remains negligible, but it means that our expectation that the Holiday Town Index should generally under perform the National Index, in currently weak economic time, has not quite materialized of late.
FNB Estate Agent Survey suggests that holiday home buying not yet softening
Interestingly, the FNB Estate Agent Survey suggests that a recent renewed acceleration in growth in the FNB Holiday Town House Price Index could be “justified”, with the sample of agents having perceived some mild strengthening in holiday home buying levels.
The Estate Agent Survey is dominated by Major Metro agents, but does have a question regarding the level of holiday home buying, expressed as a percentage of total home buying.
After having dipped to an estimated 1.77% of total home buying as at the final quarter of 2015, holiday home buying is perceived to have gradually risen to 3.65% of total home buying buy the final quarter of 2017. There had been a dip in this percentage in the 2nd quarter of last year, which we had thought may be the start of slowing holiday home demand, but this proved to be a “false alarm”, with the final two quarters of 2017 showing strengthening once more.
And a similar movement happened in year-on-year growth in the FNB Holiday Towns House Price Index, which was slowing early last year, but re-accelerated in the final two quarters of 2017.
Therefore, whilst FNB expected the Holiday Town markets to “under perform” the national market, due to constrained economic and financial times pushing households towards a greater focus on necessities such as primary residences, and less on luxuries such as holiday homes, this does not appear to have happened in a big way yet.
Also supportive of certain holiday towns in recent years, notably along the Western and Southern Cape Coast, has probably been a large “migration” out of Gauteng by retirees looking to relocate to the Western Cape region. This “migration” has been well-documented, and while the still-working part of the “migrant” population generally head towards the Cape Town City Metro and immediate surrounds, retires may prefer the Western Cape’s coastal holiday towns in significant numbers.
And so, for the time being, although FNB still believes that the more primary residence driven major metro markets will generally outperform the Holiday Town markets for as long as the economy remains in a low growth phase, in recent quarters we have seen Holiday Townhouse price inflation running neck and neck with the National House Price Index after some prior years of under performance.
Longer term relative performance of holiday town markets
Around the 2003-2006 period, the FNB Holiday Town House Price Index far outperformed our FNB Deeds Data version of the National House Price Index, which is dominated by the major city markets.
That period meant that, from the start of 2001 to the end of 2007 (when the property boom ended), the Holiday Town House Price Index grew cumulatively by 377.9%, far outperforming the 248.1% cumulative growth in the National House Price Index.
However, from the start of 2008 to the fourth quarter of 2017, the relative pictures have been reversed. Holiday home buying since the boom years has been more on the back burner in a financially constrained environment, and the holiday town house prices deflated more significantly than the major cities during the 2008/9 recession period and for a while thereafter, after having “overheated” more significantly than the cities during the boom period.
The net result is that, whereas the national average cumulative house price growth rate is estimated at 55.3% from the first quarter of 2008 to the fourth quarter of 2017, the FNB Holiday Towns House Price Index has only managed cumulative price growth of 18.35% over the same period.
Putting it all together, i.e. the out performance of holiday towns pre-2008 and the under performance since, and fnb sees a cumulative holiday town house price growth rate of 465% from the start of 2001 to the fourth quarter of 2017. This is virtually the same as the cumulative growth of 444% in the National House Price Index.
Recently, the FNB Holiday Town Repeat Sales House Price Index has moved back more-or-less into “sync” with the National House Price Index, actually growing slightly faster than the National Index in the final quarter of 2017. This comes after a number of prior years of “under-performance” by the Holiday Towns.
The FNB Estate Agent Survey points to the level of holiday home buying nationally holding up reasonably well as at late last year, so perhaps this slightly stronger Holiday Town house price growth is justified. In addition, holiday town markets along the Western Cape coastline in particular may have been receiving significant support from a sizeable inland retiree population looking to relocate from the likes of Gauteng to the Western Cape, a “migration” that has been well-documented in recent years.
However, since the end of the pre-2008 housing boom, the holiday towns have under performed the national market in terms of house price growth on a cumulative basis, and despite the recent performance we remain of the belief that holiday town market will continue to broadly under perform the national market for as long as the country’s economy is mired in weakness, and Household Disposable Income growth remains constrained.