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Johannesburg – A noticeable feature of the lower income area segment in the property market since early 2012 has been a steady rise in the percentage of sellers believed to be selling in order to upgrade to a better home, reaching 24% by late 2013.
This is according to the latest FNB Estate Agent Survey.
“Solid first time buying, in these times of low interest rates and relatively easy access to credit, is probably a key driver of the relatively good activity levels perceived in the lower income areas,” said John Loos, Household and Property Sector Strategist at FNB Home Loans.
“Strong levels of selling in order to upgrade in these areas may be a key driver of activity levels in the next segment up, namely the middle income area segment. This is as a group of sellers moves upward to their next purchase.”
By comparison, the middle (17%), upper (17%) and high net worth (18%) income area segments have a significantly lower percentage of sellers selling in order to upgrade.
But Loos said it is important to note that all segments have been seeing a rising trend in the percentage of sellers intending to upgrade. This means that the general support from upgrade-related selling for the higher end segments has been increasing.
The gap between segments
For 2013 as a whole, the FNB Estate Agent Surveys continue to point to a gap between, on the one hand, the lower and middle income area segments, and the upper income and high net worth segments on the other hand.
The gap has, however, narrowed noticeably late in the year.
The high net worth segment had average fourth quarter house prices of R3.88, while that of the upper income segment was R2.33m, the middle income segment at R1.19m and the lower income segment at R854 100.
Examining average agent activity ratings by segment for 2013, the middle income segment comes out tops followed by the lower income segment, the upper income segment and the high net worth segment.
Financial stress
The lower income segment has seen the financial health of its homeowners improving at a more rapid rate than the other segments, off a higher base, since the height of financial stress in 2009.
Compared to a peak of 38% in the second quarter of 2009, lower income areas have seen their estimated percentage of sellers believed to be downscaling due to financial pressure decline to 15% for the four quarters up until and including the fourth quarter of 2013.
Loos cautions, however, that it is important to remember that low interest rates mask many financial frailties. So one must be careful of drawing conclusions as to how sustainable this better financial performance is when tougher times come again one day.
The lower end is also arguably more interest rate sensitive, being highly credit-dependent.
“But for the time being the improved home owner financial performance is noticeable, and more supportive of the property market, especially at the lower income end,” said Loos.
“And over the past four quarters, the lower income area financial stress-related downscaling percentage has even moved slightly below the percentages of middle income areas (17%), higher income areas (16%) and high net worth areas (16%).
Seller price realism
The lower and middle income segments still appear to maintain a significant gap between themselves on the one hand, and the upper and high net worth segments on the other hand, in terms of more realistic pricing.
In 2013 the average estimated time of homes on the market prior to sale for the lower and middle income segments, was 12.1 weeks and 12.8 weeks respectively. By comparison, the upper income and high net worth segments both recorded 19.2 weeks.
“While one should normally expect higher end homes to be on the market for longer, the fact is that the gap between these segment estimates and the two lower segments widened during 2013,” said Loos.
The other measure of price realism is the percentage of sellers having to drop their asking price to make the sale.
Here, too, the lower income segment remains ahead at 82% of total sellers for the past four quarters. The upper income segment has the highest percentage followed by the middle income (88%) and the high net worth (85.8%) segments.
“So, in a nutshell, in 2013 we saw two main features. Firstly, the middle income segment was rated the strongest in terms of activity levels and stock constraints (higher stock constraints),” said Loos.
“And secondly, we saw a closing of the activity gap between the lower and higher end, with the upper income and high net worth segments showing noticeable improvements.”
This is according to the latest FNB Estate Agent Survey.
“Solid first time buying, in these times of low interest rates and relatively easy access to credit, is probably a key driver of the relatively good activity levels perceived in the lower income areas,” said John Loos, Household and Property Sector Strategist at FNB Home Loans.
“Strong levels of selling in order to upgrade in these areas may be a key driver of activity levels in the next segment up, namely the middle income area segment. This is as a group of sellers moves upward to their next purchase.”
By comparison, the middle (17%), upper (17%) and high net worth (18%) income area segments have a significantly lower percentage of sellers selling in order to upgrade.
But Loos said it is important to note that all segments have been seeing a rising trend in the percentage of sellers intending to upgrade. This means that the general support from upgrade-related selling for the higher end segments has been increasing.
The gap between segments
For 2013 as a whole, the FNB Estate Agent Surveys continue to point to a gap between, on the one hand, the lower and middle income area segments, and the upper income and high net worth segments on the other hand.
The gap has, however, narrowed noticeably late in the year.
The high net worth segment had average fourth quarter house prices of R3.88, while that of the upper income segment was R2.33m, the middle income segment at R1.19m and the lower income segment at R854 100.
Examining average agent activity ratings by segment for 2013, the middle income segment comes out tops followed by the lower income segment, the upper income segment and the high net worth segment.
Financial stress
The lower income segment has seen the financial health of its homeowners improving at a more rapid rate than the other segments, off a higher base, since the height of financial stress in 2009.
Compared to a peak of 38% in the second quarter of 2009, lower income areas have seen their estimated percentage of sellers believed to be downscaling due to financial pressure decline to 15% for the four quarters up until and including the fourth quarter of 2013.
Loos cautions, however, that it is important to remember that low interest rates mask many financial frailties. So one must be careful of drawing conclusions as to how sustainable this better financial performance is when tougher times come again one day.
The lower end is also arguably more interest rate sensitive, being highly credit-dependent.
“But for the time being the improved home owner financial performance is noticeable, and more supportive of the property market, especially at the lower income end,” said Loos.
“And over the past four quarters, the lower income area financial stress-related downscaling percentage has even moved slightly below the percentages of middle income areas (17%), higher income areas (16%) and high net worth areas (16%).
Seller price realism
The lower and middle income segments still appear to maintain a significant gap between themselves on the one hand, and the upper and high net worth segments on the other hand, in terms of more realistic pricing.
In 2013 the average estimated time of homes on the market prior to sale for the lower and middle income segments, was 12.1 weeks and 12.8 weeks respectively. By comparison, the upper income and high net worth segments both recorded 19.2 weeks.
“While one should normally expect higher end homes to be on the market for longer, the fact is that the gap between these segment estimates and the two lower segments widened during 2013,” said Loos.
The other measure of price realism is the percentage of sellers having to drop their asking price to make the sale.
Here, too, the lower income segment remains ahead at 82% of total sellers for the past four quarters. The upper income segment has the highest percentage followed by the middle income (88%) and the high net worth (85.8%) segments.
“So, in a nutshell, in 2013 we saw two main features. Firstly, the middle income segment was rated the strongest in terms of activity levels and stock constraints (higher stock constraints),” said Loos.
“And secondly, we saw a closing of the activity gap between the lower and higher end, with the upper income and high net worth segments showing noticeable improvements.”
