First-time home buyers spur demand

Johannesburg - FNB's Estate Agent Survey has found that an increasing number of first time buyers are able to produce the money required for deposits and transfer fees, leading them to become a more significant source of residential demand in 2011.

John Loos, household and property strategist at FNB Home Loans said that the survey showed the changing behaviour that was beginning to happen in the household sector.

First time buyers had become far less significant in the home buying market around recession time, dropping to an estimated 15% of total home buyers by 2008, according to the sample of agents surveyed at the time.

However, according to FNB, the past three years have seen consecutive increases in the first time buying percentage, with a very significant jump from 17% in 2010 to 23% in 2011. This was the highest first time buying percentage since 2005. However, one should bear in mind that overall home buying volumes were far lower compared with 2005/6, so this percentage still represented a far lower overall number of first time buyers compared to then.

Nevertheless, the percentage improvement over the past 3 years was partly reflective of improved first time home buyer confidence. Confidence alone was an important factor in driving first time buyer demand.

Unlike established households, for whom having a home was often a more urgent and pressing matter, many young first time buyers have had the flexibility of remaining in the rental market until such time as economic or interest rate conditions improved, or alternatively postponing their departure from their parents' home.

It should therefore not be too surprising that the recovery in the first time buying percentage lagged the overall market recovery somewhat, with a portion probably choosing to adopt a "wait-and-see approach, but were now (rightly or wrongly) more encouraged as the memory of recession and high interest rates fades.

In addition, it was true that banks had relaxed their credit criteria gradually and mildly since 2008, which was crucial for first time buyers in a country which has an extremely low savings rate that makes deposit requirements troublesome for many.

Loos did point out however, that FNB believed household saving would improve noticeably in 2012, and indeed in the housing market some agents were already starting to see signs that this was happening. Higher savings rates were a far more desirable solution to the home loan deposit constraint than merely relying on banks to relax credit criteria.