The 4th Quarter 2013 FNB Estate Agent Survey, completed in the month of November, saw a resumption of strengthening in perceived domestic residential property activity, after the preceding quarter’s reading had dipped slightly.
The survey is of a sample of estate agents predominantly in SA’s major metro regions. The 1st question asked to agents is with regard to their perceptions of residential market activity in their areas, a subjective question on a scale of 1 to 10, with 10 being the strongest level of activity.
The 4th Quarter Residential Activity Indicator rose, from the previous quarter’s 5.91, to 6.27. This increase would appear to be more than just positive seasonal factors as the summer arrived, because our statistically seasonally-adjusted version of the Indicator also rose from 5.98 to 6.41 over the 2 quarters.
This rise in the Activity Rating in the 4th quarter of 2013 suggests that the gradual strengthening trend in the market through 2012 and 2013 is still intact, and that the mild seasonally-adjusted decline in the preceding quarter did not yet signal a trend change.
Along with the gradually rising activity trend, agents also saw a broad improvement in the balance between demand and supply in 2013.
One indicator of where the market is in terms of seller pricing realism, or otherwise put the balance between demand and supply at prevailing price levels, is the estimated average time that properties remain on the market prior to sale.
From a 3rd quarter estimate of 14 weeks and 5 days in the previous quarter, the estimated average time on the market in the 4th quarter 2013 survey rose very slightly to 15 weeks and 1 day.
However, quarter-to-quarter fluctuations can be a little volatile, so one quarter’s rise doesn’t prove much. More significant is that the smoothed trend line continues to point to a broadly declining trend in the average time on the market ever since a 19 weeks and 1 day high at the beginning of 2011.
Nevertheless, at around 15 weeks, which remains a lengthy time compared to the levels of 2004/5, this estimate still does not point to a “buying frenzy” or booming market. Things still seem by-and-large “rational and calm”.
We also ask agents to estimate the average percentage asking price drop on those properties where a price drop is required to make the sale. This average drop remained at -9% in the 4th quarter survey, the same as in the 3rd quarter, but is now noticeably less in magnitude than estimates of -13% at a stage of 2011.
Agent confidence regarding near term prospects remains noticeably above the low points of 2007/8 and 2011, but still not “overly strong”.
In the 4th quarter survey, 34% of agents expected activity to increase in the next 3 months, down from 61% in the previous quarter, while 48% expected it to stay the same and only 18% expected a decrease in activity.
The agents were split on consumer sentiment/confidence, but a slightly greater 6% cite “positive consumer confidence” as a prevalent factor as opposed to 5% citing “economic stress/pessimism”.
6% of agents cited interest rates as a key factor driving their expectations, of which the majority saw low and stable interest rates as a positive factor for activity in the near term.
The bulk of the agents foresaw a near term decrease in activity levels, mostly due to seasonal factors as summer holidays approached. But examining the non-seasonal factors, stock constraints were the next biggest factor cited, and these can have something of a constraining impact on activity levels in the short term, until such time that building activity has increased in response to such constraints. But while stock constraints are not always popular amongst agents, who make their living on turnover volume, it can be positive for house price performance.
Agents expect no extreme increase in price performance over the next 12 months. The most popular survey response was a 5% price increase, which is the view of 21% of respondents, while 15% expect 6-8% increase, 12% expect a 10% rise, and 6% anticipate above 10% growth. However, there is still a significant percentage expecting very little change, no price change, and even a few anticipating price decline, which translates into a “net expected price movement” of +4.7% increase.
In summary, therefore, late in 2013, estate agents surveyed continued to point to a very comfortable and gradually improving residential property market, a broad trend that has been in place since early-2012. As a group they point to a market whose levels of activity are in the “stable” range. They perceive the balance between demand and supply to be gradually improving, stock constraints mounting, and gradually improving price realism.
However, they do not yet point to a market that could be classified as “booming or irrational”, and they do not appear to anticipate such a market in the near term, expecting house price growth not far from 5%, which would be not far behind our expectations for consumer price inflation.
Alan Straton
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