The FNB Estate Agent Survey points to a possible resumption of the improving trend in the level of home maintenance and upgrades, which in turn may have once again begun to strengthen growth in the Hardware, Paint and Glass Product Retail Sector.
While the prior 2 quarters FNB Estate Agent Surveys showed a slight deterioration in the perceived levels of home maintenance and upgrades, following a prior improving trend dating back to the lows of the 2008/9 recession period, the 3rd quarter 2014 survey has pointed to renewed improvement, suggesting that the multi-year improving trend may not yet be over.
Using a 2-quarter moving average to smooth the data mildly, we depict agent perceptions regarding levels of home maintenance. From 2004 to 2013, the survey respondents reported a long decline in the percentage of homeowners “investing in their properties with a view to adding value”. This percentage reached a lowly 3% of total homeowners in the areas of these agents by the 1st half of 2013, well down on the 43% at the beginning of 2004. The percentage did show some recovery late in 2013, recording a 10.5% figure for the 2 quarters up to the 1st quarter of this year. Then, after receding slightly in the 2nd quarter of 2014, it rose once more to 11% in the 3rd quarter.
The next level “down” is the percentage of homeowners “fully maintaining their property and making some improvements”. This percentage also declined mildly earlier in 2014, from 45.5% at the end of 2013 to 42.5% by the 2nd quarter of 2014, but continued its decline in the 3rd quarter to 40.5%.
The next level, however, namely “percentage of owners not improving but still fully maintaining homes”, saw its prior quarterly declines reversed, rising in the 3rd quarter from 34.5% previous to 37.5% in the 3rd quarter of 2014.
This translates into a 3rd quarter decline in the category that one would want to see declining, i.e. the “percentage of homeowners attending to basic maintenance only”, which in effect means the home will “go backward” over time. This percentage decreased 12.5% in the 2nd quarter of this year to 9.5% in the 3rd quarter.
Those owners allowing their homes to “get run down” remained a small percentage, recording an unchanged 1.5% of total owners for the 2 quarters to the 3rd Quarter of 2014.
A quarter ago, we had said that it was still a bit early to conclude that we had started a sustained deteriorating trend in the levels of home maintenance and upgrades, and the 3rd quarter Estate Agent Survey appears to justify such a caution. In conditions of rising interest rates, an overall deterioration could possibly be expected, but the snails’ pace of interest rate hiking to date appears to have been insufficient to cause a sustained deterioration.
The improvement in the 3 higher levels of maintenance and upgrades when added together are reflected in a 3rd Quarter strengthening in the FNB Home Investment Confidence Indicator.
This indicator is represented on a scale of -1 to +3. The indicator showed a broad gradual increase over much of the 2009 to 2013 period, to reach a level of +1.53 at the end of last year. It then receded in the 1st 2 quarters of 2014 before rising again to +1.54 in the 3rd quarter. This is the highest level since the final quarter of 2007.
The renewed increase in Home Maintenance levels may have been reflected in the start of another growth uptick in retail sales for Hardware, Paint and Glass Products in real terms, after a lull earlier in 2014. The broad rise in the Home Investment Confidence Indicator since 2011 has been accompanied by this category of retail sales showing real year-on-year growth in excess of overall retail sales growth for much of the period from 2011-2013. In recent months, after an earlier lull, this retail category has seen sales return to growth rates in excess of overall retail sales growth, recording 3.6% real year-on-year growth for the 3 months to August.
Finally, with regard to the reasons for why people undertaking home improvements are doing it, our agent survey still points to limited speculative building behavior, to the tune of 6% of total home improvements.
This remains low when compared to the 24.5% estimate back in early-2006. The overwhelming majority (76%) still do it for their own use, while 14.5% do it because they “can’t afford to buy elsewhere”.
The Home Maintenance and Upgrades market still remains vastly improved from 2008/9 levels, as at the 3rd quarter of 2014.
In addition, the 3rd quarter survey has shown renewed mild improvement after 2 prior quarters of slight deterioration. Therefore, while we had previously pointed to the possibility that the start of interest rate hiking may lead to the end of the broad improving trend in home investment levels, the most recent survey along with recent months’ Hardware sales numbers suggest that perhaps the very slow and moderate pace of rate hiking to date has been insufficient to do so yet.
This renewed improvement in the perceived levels of home maintenance, in turn, may have impacted positively on hardware retail sales growth, whose real growth has once again begun to accelerate in recent months.
The mild improvement in overall home investment levels has been seen in the “percentage of homeowners doing Value Adding Upgrades to properties”, as well as in the “percentage of homeowners doing full home maintenance”.
And so, the FNB Home Investment Confidence Indicator rose slightly during the 3rd quarter of 2014.
With Consumer Price Inflation having recently moved back to below the 6% upper target limit, prospects for stable interest rates during the remainder of 2014 have increased. Given this, along with currently high levels of confidence in the residential property market, the near term prospect for further increase in the levels of home maintenance and fixed investment have improved.
This article “Trend in Home Maintenance And Upgrades Improving” was issued by John Loos, FNB Household and Property Sector Strategist – https://blog.fnb.co.za/