Roy Cokayne

ABOUT a third of all first-time home buyers in South Africa are suffering from buyer panic, a fear they may not be able to afford a house in the future if they do not buy now.

John Loos, a household and property sector strategist at FNB Home Loans, expressed surprise at the perceptions of the level of first-time buyer panic over the past five quarters in its estate agent surveys.

These surveys revealed that first-time buyer panic increased to 38 percent in the first quarter of this year from 30 percent in the first quarter of last year. This question was first included in the surveys from the fourth quarter of 2013.

Loos stressed that there was little reason for first-time buyers to panic because house prices were not rising fast.

He suspected the percentage of home buyers suffering from buyer panic would have been much higher in the property boom years but stressed that the current percentage still appeared significant in a residential market that was experiencing mediocre house price inflation of about 5 percent, which was not much above consumer price inflation.

FNB’s estate agent survey for the first quarter of this year revealed the percentage of first-time buyers expressed as a percentage of total home buyers declined slightly to 25 percent from a high of 28 percent in the previous three quarters.

Loos believed the key cause of first-time home buyer panic was the strong belief by many that they had to own a home and the rental option “is not cool”.

He said buyer panic could lead to hasty buying decisions, which later cost some homeowners dearly.

Cautious approach

Prospective first-time home buyers should consider the rising costs associated with home ownership and the possibility of further cost increases, especially in interest rates on debts and rates and tariff hikes.

“These cost increases don’t necessarily mean that one should not buy a home. But they may suggest that home buyers should buy ‘well within their means’ to be able to absorb such potential cost increases, or that they should possibly ‘wait it out’ until such time that they are financially strong enough,” he said.

Loos said buyer panic was to be expected during the 2004/05 period when average house price inflation peaked at extreme levels of more than 30 percent year on year.

But Loos suggested that if South Africans did not see home ownership as such a priority and instead had a different mindset where renting was more popular, home buying demand might have faded earlier in the boom as affordability deteriorated, causing the boom to fizzle out earlier.

Loos said the estimated percentage of home sellers selling to downscale due to financial pressure was another statistic that was of concern and he believed it was related to the strong culture of home ownership and periodic bouts of buyer panic.

The percentage of people selling to downscale due to financial pressure had dropped dramatically from 34 percent in 2009 to 12 percent in the first quarter, which Loos said was still significant given that interest rates had been at multi-decade lows in recent years.

Loos said this downscaling process was costly, with high transactions costs and disruption caused by moving house.