The latest Property Barometer from FNB highlights the reality of home selling in the local property market in South Africa right now – things are tough.
The raft of negative political and investor-related news in the form of sovereign ratings downgrades keeps both consumer and business confidence very weak, the lender said.
Household and property sector strategist at FNB, John Loos, said that many sellers are prepared to “wait it out” for their asking price in the current market, which mirrors the the state of the economy – flat.
He said that while eventually many will get their asking price, “what they may not realise is that a lengthy waiting period in many instances means that their asking price has been declining in real terms during the waiting period on the market”.
“This means that in actual fact they have been gradually dropping their asking price in real terms without actually realizing it,” he said.
FNB pointed to three ways the market is working against sellers currently:
- The estimated average time of properties on the market showed a noticeable increase.
- Agents reported a rise in the percentage of sellers having to drop their asking price.
- The average estimated number of viewers per show house decline.
FNB said that a greater percentage of sellers are being forced to drop their asking price to make the sale.
Loos said that while the majority of sellers normally tend to start high and allow themselves to be bargained down as a strategy, there is nevertheless a cyclical element to this behavior, “and we have seen this estimated percentage of sellers having to drop their asking price creeping higher of late”.
The lender said it was recording ‘a larger magnitude’ of estimated average asking price drops.
Average time of homes on the market rises further
Loos said that the lender takes a subjective view that around 12 weeks (near to 3 months) average time on the market more-or-less represents a market equilibrium situation on a national average basis.
“In recent times, the housing market indeed appears to have been gradually away from equilibrium on a national average basis.”
From 2014 to early-2016, the estimated average time had been moving broadly sideways at levels around 12 weeks. “Through 2016 and into 2017, the market appears to have been broadly drifting away from that equilibrium, and the third quarter 2017 FNB Estate Agent Survey reflected a continuation of this gradual trend,” Loos said.
From 15 weeks and four days in the previous quarter, the average time of homes on the market in the third quarter survey moved out slightly further to 15 weeks and six days.
Interest in show days on the decline
FNB said that a key residential “demand-side” survey question that is asked to the survey respondents, in the FNB Estate Agent Survey, is to give an estimate of how many serious viewers per show house they get before making the sale.
“From a multi-year high average of 14.42 estimated serious viewers per show house for the 4-quarters of 2013, we saw a noticeable decline to 10.66 average for the four quarters of 2015.
“Thereafter, the broad movement has been more-or-less sideways up to the present, averaging 10.49 viewers for the four quarters up to and including the third quarter of 2017 – and 10.29 for the third quarter of 2017 alone,” said Loos.
Given the condition of the SA economy at present, it is likely that the rising national trend in average time on the market will continue, said Loos.
“This should translate into further real house price decline in the near term, as home sellers are gradually forced into greater price realism in a time of mediocre demand,” the property analyst said.
He added that the Reserve Bank’s “gradualist” approach to interest rate moves enhances the probability of the correction in real house prices, to a stage where the market moves back into equilibrium, being a relative gradual and “smooth” one.
“This is hopefully a very different situation from the shock to the market, accompanied by severe financial stress, in 2008 when it went from “boom to bust” in a relatively short space of time,” Loos said.