This major city in South Africa is failing first-time house buyers

As a percentage of total home buying, the second quarter 2016 FNB Estate Agent Survey points to an unchanged level of first time buying, but the broader trend has been down since the high point reached in 2014.

According to the FNB Estate Agent Survey, for the 2nd quarter of 2016, first time home buying remained unchanged from the previous quarter when expressed as a percentage of total home buying.

This source of residential demand remains a significant source of housing demand, accounting for an estimated 21% of total home buying, the financial services firm said.

While the percentage estimate can be volatile from quarter to quarter, recent quarters’ estimates have remained below the multi-year high point of 28%, reached in the second quarter of 2014, and the smoothed trendline has recently moved lower.

This percentage nevertheless remains solid compared to the 12% low reached around recession time back in 2008, noted property sector strategist at FNB, John Loos.

Breaking it down to major regions, FNB uses a quarter moving average due to volatility that can come with survey sample size getting smaller. For the first two quarters of 2016, it noted Cape Town as having the lowest estimated first time buyer percentage of 16%.

“That region’s low percentage may in part have to do with affordability challenges for young buyers that may have arisen due to recent strong house price inflation,” said Loos.

In a follow up question, the bank attempted to ascertain the agents’ perceptions regarding the level of “first time buyer panic” in the market. This refers to when first time buyers become concerned with house price inflation, worrying that “if they don’t buy now they will never be able to afford a home in future”.

“This is important, because widespread buyer panic can cause a housing market’s price levels to ‘overshoot’, contributing strongly at times to house price bubbles’,” said Loos.

The sample of agents’ surveyed has pointed to a significant percentage of first time buyers suffering from ‘buyer panic’ in recent surveys. However, FNB said that this percentage has begun to subside over the last three quarters, from a high of 54% in the third quarter of 2015 to 46% of first time buyers by the 2nd quarter of 2016.

“This should be expected, given a market whose inflation remains in single-digit territory, and has broadly softened since 2014, the brief early-2016 ‘bump up’ aside,” said Loos.

“As it was, the still-relatively high first Time Buyer Panic percentages of recent quarters have probably given an inflated impression of how widespread this problem was, because it must be borne in mind that ever since the end of the pre-2008 residential boom period, overall transaction volumes levels as well as 1st time buying transaction levels have been relatively low.”

Also tapering off as interest rates rise and affordability challenges mount has been the level of single-status home buyers (versus couples) expressed as a percentage of total home buying. Many of these may also be first time buyers, FNB said.

In the second Quarter 2016 Estate Agent Survey, the estimated percentage was 17% of total buying, down from the price quarter’s 19% and below the multi-year high of 20% reached early in 2014.

Like younger first time buyers, single-status buyers are often more constrained financially due to not being able to combine two incomes to be able to afford a home. “In times of mounting affordability challenges, they can choose to remain out of the buying market for a longer time,” the property expert said.

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This major city in South Africa is failing first-time house buyers