On a national average basis, the second quarter 2018 FNB Estate Agent Survey showed a noticeable lengthening in the average time of homes on the market prior to sales, pointing to a renewed housing market weakening in terms of housing demand relative to supply.
This is reflective of “Ramaphoria” tapering off. In the first quarter of 2018, FNB saw a significant strengthening in their set of market indicators, with agents pointing to a strong positive impact coming from the change in the country’s political leadership, most notably the President. In the second quarter, however, the excitement has worn off, and the household sector is back to dealing with a “recessionary economy” and rising costs of living.
- The second quarter 2018 FNB Estate Agent Survey saw the average time of homes on the market lengthen noticeably, from fourteen weeks and one day in the prior quarter to sixteen weeks and four days, reflecting improved housing demand relative to supply in the second quarter.
- From a previous quarter’s 91%, the percentage of sellers being required to drop their asking price to make the sale also increased to 96% in the second quarter of 2018.
- The estimated magnitude of drop in asking price also pointed towards a weaker market in the second quarter of 2018, increasing from -8.2% in the prior quarter to -9.2%.
- The Namibian market remains the weak market in the broader Rand Area. Whereas South Africa’s estimated average time on the market was sixteen weeks and four days, Namibia’s had risen to as high as twenty-five weeks and six days in the second quarter of 2018.
- In the second quarter of 2018, FNB saw a mere 4% of agents citing “stock constraints” as an issue in their areas. While this is slightly up from the prior quarter’s 3.4%, it remains very low compared to the 24% high of early 2015.
- Within South Africa, there is a major difference in market balance between Gauteng’s Metros and the three major coastal metros. Whereas Gauteng’s average time on the market in the second quarter of 2018 was fourteen weeks and one day, Tshwane Metro being the strongest market within this region, the aggregated time on market of the three major coastal metros, i.e. Ethekwini, Nelson Mandela Bay and Cape Town, was a far longer twenty weeks and one day.
The major survey indicators of house price realism all point towards weakening but there are major regional differences
Due to significant resistance by home sellers to downward pressure on house prices in times of housing demand slowdown, house prices do not fully adjust in the short term. Instead, the residential market often moves away from market equilibrium price for lengthy periods of time. Such a move away from equilibrium is reflected in a rise in the average time that homes remain on the market prior to sale.
FNB has therefore developed indicators which assist them in trying to ascertain whether they have a market moving away or closer to equilibrium, or otherwise put, whether housing demand relative to supply is strengthening or weakening.
An indicator of housing demand
Serious viewers of show houses remains moderate
In the second quarter of 2018, FNB saw a slight quarterly increase in the estimated average number of “serious” viewers per show house before sale. From 9.47 viewers in the first quarter, the estimate rose to 10.42. However, due to quarter to quarter volatility, FNB places little emphasis on these small quarterly movements, and use a four-quarter moving average to examine the broader trend. The four-quarter moving average for the four quarters up to and including the second quarter of 2018 was 10.2 viewers, and this was slightly down from 10.31 for the four quarters up to the first quarter of this year. It also remains well-below the 14.42 high reached in the final quarter of 2013, just before the early-2014 start of interest rate hiking. The average number of viewers declined steadily through 2014 and 2015, before moving sideways-to-slightly lower through 2016 to the present time, never really recovering.
Indicators of market balance and price realism
Average time of homes on the market rose noticeably in the second quarter of 2018
In the second quarter of 2018, FNB saw the previous quarter’s progress made in reducing the average time of homes on the market prior to sales being quickly reversed.
From fourteen weeks and one day in the first quarter 2018 Estate Agent Survey, the average time of homes on the market rose noticeably to sixteen weeks and four days, almost fully reversing the first quarter gains made from the seventeen weeks and two days average in the fourth quarter of 2017.
FNB takes the, admittedly subjective, view that around twelve weeks (near to three months) average time on the market more-or-less represents a market equilibrium situation on a national average basis.
Up until the final quarter of 2017, the market had drifted away from that equilibrium level, reaching that average time on the market of seventeen weeks and two days at that stage.
The first quarter improvement went hand in hand with a jump in market activity, according to the agents, and it appeared to be a “Ramaphoria-related” jump, something FNB saw briefly in national business confidence too.
There had been some excitement around the change in the country’s president early in the year. However, this excitement appears to have largely dissipated, housing activity was perceived to have dropped again in the second quarter of 2018, average time on the market is longer once again, and it is back to a “business as usual” situation in a stagnant economy.
A higher percentage of sellers is required to drop their asking price to make the sale too
A second question related to price realism and market balance is where FNB asks the agents to estimate the percentage of sellers ultimately being required to drop their asking price to make the sale.
While the majority of sellers normally tend to start high and allow themselves to be bargained down as a strategy, there is nevertheless a cyclical element to this behavior.
The second quarter 2018 survey showed a rise in this estimated percentage of sellers having to drop their asking price, from 91% in the previous quarter to 96%.
Once again, FNB cautions that from quarter to quarter the data can be volatile. But like the average time on the market estimate for the second quarter, an increase in percentage of sellers dropping asking price also points to a shift towards weakening demand relative to supply.
FNB also sees a larger magnitude of estimated average asking price drop
In the second quarter survey, the estimated magnitude of decline, for those being required to drop their asking price, became slightly larger. From -8.2% in the first quarter of 2018, the estimated percentage drop in asking price to make the sale increased to -9.2% in the second quarter.
Therefore, in the second quarter of 2018, all three key survey responses related to “market balance”, or “price realism”, point to a quarterly deterioration in the balance between demand and supply of homes.
Stock constraints remain low
FNB sees very few agents pointing towards housing stock constraints in the market, and slightly more pointing towards “ample stock”.
It is difficult to gauge the strength of supply of residential stock through asking survey respondents for their opinion. But when asking agents about their market expectations in the near term, FNB allows them to provide a list of factors that influence their expectations, both in a positive and a negative way
The second quarter 2018 Estate Agent Survey continues to point to relatively few agents citing stock constraints as an issue. The percentage of agents citing stock constraints as an issue rose slightly from 3.4% in the first quarter to 4% in the second quarter. However, the percentage citing “ample stock available” also rose, from 6.7% of agents in the prior quarter to 7.3% in the second quarter of 2018.
Stock constraints as well as “gluts” thus both remain very low in the second quarter, although the “ample stock” level remains slightly above the “stock constraints” level.
On a national average basis, a noticeable increase in the average time of homes on the market was recorded in the second quarter of 2018, quickly reversing most of the “Ramaphoria” market gains of the 1st quarter.
This ties in with a second quarter weakening of National Business Confidence as per the RMB Business Confidence Index, which also had a brief first quarter “spike”, something shared by the FNB Residential Activity Rating (covered in a previous report).
Some of the increase in the average time of homes on the market is likely to be seasonal, given that the second quarter is typically a weak seasonal quarter for home buying. However, FNB cannot ignore the signs of a quick reversal in national sentiment following the early-2018 excitement, driven by political leadership change in the country late in 2017 and early this year.
That wave of relative excitement was perhaps always going to be short-lived, although we had expected it to continue a little longer. But once the “novelty wore off”, the reality would remain one of economic weakness and structural impediments to the economy.