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Johannesburg - Prices for holiday homes continue to underperform, according to the latest FNB Holiday Town House Price Index.
"In these times of ongoing financial constraints on the household sector, and when property as an asset class is perhaps not the 'flavour of the month', it remains unsurprising to see the index for the third quarter of 2013 continue to underperform our more primary residential demand-driven Major Metro House Price Index," said FNB economist John Loos.
"Being non-essential in nature, holiday property buying tends to be more cyclical than primary residential demand."
This implies that certain smaller town residential markets, strongly driven by holiday property demand, should generally be more cyclical than major cities, which are overwhelmingly driven by primary residential demand.
The state of holiday town residential markets can, therefore, be one important indicator of the financial strength of the higher income household sector.
It can also be a reflection of the general popularity of the residential property asset class (popularity being important in driving luxury demand).
"In previous readings of the Holiday Town House Price Index, we had thought that this market segment had returned to 'nominal price stability' at least, but the third quarter datapoint once again shows some year-on-year decline to the tune of -3%," said Loos.
This continues to reflect holiday home buying being on the backburner relative to primary residential demand, in line with household sector financial constraints.
By comparison, our house price index for the six major metros showed +5.8% year-on-year growth in the third quarter of 2013, significantly better than the holiday town markets.
In real terms (adjusting for consumer price inflation), the estimated “downward correction” in the holiday town price levels, since the peak of real prices as by the fourth quarter of 2007, has been a cumulative -28.9%.
By comparison, the drop in real prices in the Major Metro House Price Index has been a lesser -14.0%.
"However, to get the longer term perspective regarding relative price levels of the two markets, we need to look back to the pre-boom years of the late-1990s. Then it was the holiday town markets that rose more strongly back in the boom times than did the major metro markets," said Loos.
Examining price movements since pre-boom days, it appears that, cumulatively, using the beginning of 1999 as a base for evaluation, nominal major metro price levels have just recently managed to catch up to holiday town price levels.
"According to our estimates, since the first quarter of 1999 (when interest rates had just started to fall rapidly from a 1998 prime rate peak of 25.5%, which precipitated the start of the house price boom), the Major Metro House Price Index has grown by a cumulative 396.6%, as opposed to the Holiday Town House Price Index’s mildly lower 372.4%," said Loos.
Primary residential markets still expected to outperform
Despite the boom period price performance gap between holiday towns and major metros seemingly having been wiped out, FNB's expectation remains that major city markets will continue to outperform holiday markets for the foreseeable future.
The FNB Estate Agent Survey continues to point to holiday home buying being moderate, and primary residential demand being “king”.
Whereas in early-2007, holiday home buying was estimated to be around 5% of total home buying, the most recent survey in the third quarter of 2013 shows a 2% estimate.
By comparison, primary residential buying remained high at an estimated 90% of total home buying, still well-higher than the 80% estimated for early-2007.
"Our expectations for holiday home buying to be more constrained than primary residential buying are not only about current household sector financial constraints, including high levels of indebtedness," said Loos.
It is also about the ongoing cost increases relating to owning and running a home, notably in the form of strongly rising municipal rates and utilities tariffs.
"Such running cost affordability deteriorations should be expected to impact more negatively on non-essential property buying than on primary residential buying, thus relatively benefiting primary residential demand-driven markets such as the major cities," he said.
- Fin24
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"In these times of ongoing financial constraints on the household sector, and when property as an asset class is perhaps not the 'flavour of the month', it remains unsurprising to see the index for the third quarter of 2013 continue to underperform our more primary residential demand-driven Major Metro House Price Index," said FNB economist John Loos.
"Being non-essential in nature, holiday property buying tends to be more cyclical than primary residential demand."
This implies that certain smaller town residential markets, strongly driven by holiday property demand, should generally be more cyclical than major cities, which are overwhelmingly driven by primary residential demand.
The state of holiday town residential markets can, therefore, be one important indicator of the financial strength of the higher income household sector.
It can also be a reflection of the general popularity of the residential property asset class (popularity being important in driving luxury demand).
"In previous readings of the Holiday Town House Price Index, we had thought that this market segment had returned to 'nominal price stability' at least, but the third quarter datapoint once again shows some year-on-year decline to the tune of -3%," said Loos.
This continues to reflect holiday home buying being on the backburner relative to primary residential demand, in line with household sector financial constraints.
By comparison, our house price index for the six major metros showed +5.8% year-on-year growth in the third quarter of 2013, significantly better than the holiday town markets.
In real terms (adjusting for consumer price inflation), the estimated “downward correction” in the holiday town price levels, since the peak of real prices as by the fourth quarter of 2007, has been a cumulative -28.9%.
By comparison, the drop in real prices in the Major Metro House Price Index has been a lesser -14.0%.
"However, to get the longer term perspective regarding relative price levels of the two markets, we need to look back to the pre-boom years of the late-1990s. Then it was the holiday town markets that rose more strongly back in the boom times than did the major metro markets," said Loos.
Examining price movements since pre-boom days, it appears that, cumulatively, using the beginning of 1999 as a base for evaluation, nominal major metro price levels have just recently managed to catch up to holiday town price levels.
"According to our estimates, since the first quarter of 1999 (when interest rates had just started to fall rapidly from a 1998 prime rate peak of 25.5%, which precipitated the start of the house price boom), the Major Metro House Price Index has grown by a cumulative 396.6%, as opposed to the Holiday Town House Price Index’s mildly lower 372.4%," said Loos.
Primary residential markets still expected to outperform
Despite the boom period price performance gap between holiday towns and major metros seemingly having been wiped out, FNB's expectation remains that major city markets will continue to outperform holiday markets for the foreseeable future.
The FNB Estate Agent Survey continues to point to holiday home buying being moderate, and primary residential demand being “king”.
Whereas in early-2007, holiday home buying was estimated to be around 5% of total home buying, the most recent survey in the third quarter of 2013 shows a 2% estimate.
By comparison, primary residential buying remained high at an estimated 90% of total home buying, still well-higher than the 80% estimated for early-2007.
"Our expectations for holiday home buying to be more constrained than primary residential buying are not only about current household sector financial constraints, including high levels of indebtedness," said Loos.
It is also about the ongoing cost increases relating to owning and running a home, notably in the form of strongly rising municipal rates and utilities tariffs.
"Such running cost affordability deteriorations should be expected to impact more negatively on non-essential property buying than on primary residential buying, thus relatively benefiting primary residential demand-driven markets such as the major cities," he said.
- Fin24
Add your voice to our Property Issue:
* Write a guest post
* Share a personal story
* Ask the experts
