Research

Property Barometer – First Time and Couples Buying

Nationally, first time home buying weakens, but regional differences remain large. 

According to the FNB Estate Agent Survey for the first quarter of 2018, first time buyers don’t yet appear to be sharing in the improved sentiment apparent in the country early in 2018. The estimated average first time home buyer level was 17.6% of total home buying nationally, which is lower than the 20.28% of the previous quarter, and well off the high of 28% reached in the second quarter of 2014.

A broad multi-year decline in this percentage started in the second half of 2014, which FNB sees as being in response to gradual interest rate hiking from early-2014 to early-2016, as well as some years of economic growth weakness. And as yet, FNB hasn’t seen a convincing reversal of that broad trend.

First time buyers are typically more sensitive to economic and interest rate cycles than repeat buyers, as on average they are financially weaker and more heavily dependent on credit for their home purchases.

In addition, many young aspirant buyers have not yet established a family, meaning that they have greater flexibility in terms of where they live, some remaining in their parents’ home for longer if financial or economic times appear uncertain, or alternatively renting for longer.

The 17.6% first time buyer percentage is not a very weak, if one compares it with back when the recession of 2008/9 took it all the way down to a lowly 12%. But as yet, it doesn’t appear that young aspirant buyers are convinced about improving economic conditions in 2018. However, the survey was done in February, and it is possible that the more recent March interest rate cut may bring them out in greater numbers.

Regional differences in first time buyer levels remain big 

When analyzing the first time buying survey responses by major metro region, however, one does see major divergences.

We use a two-quarter moving average for first time buyer percentages by regions in order to boost sample size. And for the two summer quarters of 2017/18, FNB finds Gauteng still to be the strong first time buyer region on the one hand, and Cape Town to be the very weak first time buyer region on the other.

Greater Johannesburg had an estimated first time buyer percentage of 21.59% for the two quarters, and Tshwane Metro a massive 30.75%.

In the three major coastal metros, Ethekwini Metro had the highest rate, i.e. 20%, Nelson Mandela Bay a weak 10.5%, and Cape Town Metro a very low 6.46%.

These major divergences partly reflect diverging home affordability trends in recent years. FNB believes that slow house price growth in Gauteng over the past decade or so has greatly improved home affordability (average house price/average household income ratio), whereas at the other end of the spectrum, Cape Town’s home affordability has deteriorated significantly during recent years of greater market strength and strong house price growth.

And right now, the Western Cape’s economy appears under some threat from a severe drought, which could be contributing to greater aspirant home buyer caution, with many perhaps adopting a “wait-and-see approach” to home buying.

Singles versus couples home buying 

Constrained first time home buying levels nationally are not only about young individuals being more financially constrained than older individuals. It is also about many of them being single, thus lacking the ability to pool household income with a spouse to buy a home.

Therefore, examining a different survey question relating to the estimated percentage of home buyers that are single (versus couples buyers), FNB has seen a multi-year decline in these singles buyers since 2014 too.

Early in 2014, singles home buyers made up an estimated 20% of the market according to the sample of agents. By the first quarter of 2018 this had declined to 14%

In short, first time home buying levels expressed as a percentage of total home buying have slowed early in 2018, according to the FNB Estate Agent Survey. This continues a broad multi-year declining trend which started late in 2014. FNB had recently believed that the level of first time buying was beginning to “stabilize”, but it appears that such a belief was perhaps premature.

However, looking forward FNB expects some improvement in first time buying levels on a national basis, buoyed with a lag by improved sentiment in the country, signs of improving economic performance in 2018, and possibly helped further by the recent March interest rate cut.

Gauteng, and especially Tshwane Metro, appears to be the first time buyer “hot spot” of late, while Cape Town with its affordability challenges remains be the first time buyer weak spot.

Read more here: FNB Property Barometer – First Time and Couples Buying – 10th of April 201