Pretoria - There has been a shift towards greater price “realism” in the residential property market, with the estimated time homes were on the market before being sold declining significantly in the first quarter of this year compared to the previous quarter.
John Loos, a household and property sector analyst at FNB, said a picture of early market strengthening appeared to be emerging based on the first quarter decline in the average time homes for sale remained on the market before being sold, together with certain other indicators.
But Loos stressed the key to residential market strengthening was how political and policy events unfolded this year in the run-up to the ANC’s elective conference in December.
Loos said the improvement in economic conditions were reflected in the recent rising trends in the composite leading business cycle indicator for South Africa, which should impact positively on housing demand.
“But political volatility and the ever-present threat of ratings downgrades for South Africa can change this improving economic scenario very quickly, should it exert significant downward pressure on investor confidence and the rand.
“A sharply weaker rand, should it happen, could mean a resumption of interest rate hiking due to an increase in imported price inflation,” he pointed out.
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Loos stressed this was not FNB's base case and the bank’s most likely scenario was for unchanged interest rates throughout this calendar year.
“But these are risks to that forecast,” he warned.
FNB revealed that the average estimated time that a home remained on the market before being sold dropped to 13 weeks and four days in the first quarter from 15 weeks in the fourth quarter of last year.
Loos said that often, in times of market weakness, part of the weakness was reflected in a longer average time that it took to sell a home, while homes were expected to trade at a faster rate, and for the average time of homes remaining on the market before being sold to decline when there were residential home supply constraints relative to demand.
He added that during tougher economic times, along with rising interest rates, the residential market often moved away from market equilibrium prices because of resistance by home sellers to drop their price, resulting in home prices becoming less realistic relative to demand.
Loos said residential demand appeared to be showing small signs of the market strengthening, with FNB’s residential market activity indicator increasing for the past two sectors.
Constraints
He said it believed this was partly attributable to some increase in residential demand early this year.
There was also possibly a small increase in residential supply constraints, with the percentage of estate agents citing residential stock constraints as an issue, rising to 12 percent in the first quarter of this year from the 6.7 percent low in the third quarter of last year.
Loos said a further indicator of residential asking price realism was the estimated percentage of sellers who were required to reduce their asking price to make the sale.
This percentage remained high at 90 percent of sellers and they had not yet seen any decline in this percentage.