Ageing homeowners are still the biggest single source of home sales, with upgrade-related and financial pressure-related selling remaining the other big ones.
South Africa’s ageing population will be a key theme in the coming years, and is already a key one in the residential property market. As yet, we are some way off from a situation where the older age cohorts are the largest ones. However, for some years the older age cohorts have been where the fastest growth in numbers has been taking place. The result is that, as in previous surveys of recent years, the “oldies” who sell in order to downscale due to life stage continue to be the largest single source of sales, according to the FNB Estate Agent Survey for the 1st quarter of 2014.
The largest percentage of sellers, i.e. 22% is still believed to fall into the category “Downscaling due to Life Stage” as at the 1ST Quarter 2014 FNB Estate Agent Survey. This form of downscaling refers to those sellers who desire a smaller home, usually either because they are getting older or because their offspring have left home. While many in this group can postpone their sale when the market is weak, as was the case around 2008-09, in reasonably good market times, when they are more confident of getting their price, we should expect this group to be the major force behind residential sales.
And indeed, since a stage of 2011 this has been the case, with this group estimated to have hovered above 20% of total sales. The 22% estimate for the 1st quarter is slightly higher than the 21% of the previous quarter, but the multi-year trend in the percentage has been more-or-less sideways since 2011.
The high degree of sales by this group is being partly driven by South Africa’s changing demographics. IHS age cohort estimates indicate that over the 5-year period 2008-2012, the noticeably faster growth in age cohort numbers took place 50+ cohorts, with most of these groups’ growth rates exceeding 20% over the period.
Selling in order to upgrade remains at multi-year highs when expressed as a percentage of total selling. This high percentage is indeed a reflection of confidence levels related to the future ability of households upgrading to be able to afford a higher priced, often more luxurious, home.
However, the question remains as to what portion of this confidence is misplaced, given the currently abnormally low interest rates by South Africa’s standards, low levels which appear unlikely to last. Nevertheless, such confidence appears to be a reality in the residential market, and the percentage of sellers selling in order to upgrade their home was estimated at 18% of total selling in the 1st quarter survey. This is, however, slightly down on the 20% of the previous quarter’s survey. It is too early to say whether this is the start of a declining trend, but it is possible that we could see a near term decline in this percentage as a portion of aspirant “upgraders” decides to stay put and wait out the expected interest rate hiking cycle.
The other “financial strength (or weakness)”-related motive for selling residential property is selling “in order to downscale due to financial pressure”. This motive was estimated to account for 15% of total sellers in the 1st quarter 2014 survey, which is marginally up from the previous quarter’s 14%, but again it is too early to say whether this is a turn in the broadly declining trend that has dated back to 2009. However, our expectation of further interest rate hiking could be expected to indeed lead to an increase in this percentage.
Increased confidence in residential property in recent times continues to be reflected in a further rise in the percentage of financially-stressed sellers, downscaling due to financial pressure, who are believed by agents to be intending to buy a cheaper property as opposed to renting. From the previous quarter’s 63%, the percentage of this group of sellers intending to buy a cheaper property has risen to 66%, now well up on the 49% estimate back in the 2nd quarter of 2011 when the question was introduced.
The other category of reasons for selling that we like to monitor due to its relevance to sentiment towards South Africa is the category “Selling in order to emigrate”. This is because South Africa is currently in a period where some key potential emigration drivers appear to exist. Such drivers include heightened social tensions, although far from as bad as the levels of the 1980’s for instance, and a lengthy bout of Rand weakness. That Rand weakness is a generally negative event for the economy and for sentiment is well known. Rand weakness is often reflective of weak sentiment towards SA, but it can also cause negative sentiment. Skilled labour is sensitive to the above factors, and has greater mobility, and South Africa is a services-dominated skills dependent economy.
Of course, emigration selling is not driven by absolute sentiment towards South Africa but by “relative sentiment”, implying that potential emigrants weigh up their perceived future opportunities locally versus those abroad.
So, at 3.4% of total sellers, emigration-driven selling remains relatively low, and we believe this to be a function of a global economy that has been mediocre for a number of years, thus constraining employment opportunities for emigrants.
This percentage is slightly higher than the estimate of 2.7% in the previous quarter. However, this rise is not significant, and a few more surveys will be required to identify any possible trend change. Any near term rise in this category of selling will depend on whether the global economic recovery can be sustained through a period in which the developed world goes about withdrawing its massive monetary and fiscal stimulus that has been in place in recent years.
The 1st quarter survey regarding the various reasons for selling appears to confirm that we are still currently at a relatively strong stage of the property cycle. The ageing portion of the population, that dominates the sellers selling in order to downscale due to life stage, remains the most important source of home selling. The second most important driver of selling is “selling in order to upgrade”, a key indicator of confidence of a portion of households in their future financial strength as well as in residential property as an asset. The third-most important driver is downscaling due to financial pressure, a percentage far down from 2009 but still significant at 15% of total selling.
The question is where to from here? Based on our expectation of further interest rate hiking, and recent economic weakness continuing, we expect some deterioration in some of the key cyclical reasons for selling. This should include a decline in the percentage of sellers selling in order to upgrade, along with a moderate rise in those selling in order to downscale due to financial pressure.
And one smaller category which may already be starting to reflect SA’s weakened employment growth situation is that of “selling in order to re-locate within South Africa” (i.e. to different region), or so-called “semi-gration”. This percentage has declined from 9% of total selling a year ago to 7% in the 1st quarter of 2014.
With regard to the “oldies” who sell in order to downscale due to life stage, we expect them to remain the largest percentage of total sellers for the foreseeable future, due to the strong growth in the number of people reaching “retirement-age”.
Issued by John Loos, FNB Strategist.