'Still a buyers' market'

On average, the sample of estate agents surveyed in the third quarter perceived residential demand to have weakened for the second successive quarter, after a previous strengthening trend that started back late in 2008. On a scale of one to 10, the agent demand activity rating declined from 5.96 to 5.66. While seasonal factors can play a role, year-on-year growth in the activity rating also declined from a previous quarter’s +24.4 percent to +0.2 percent in the third quarter, suggesting that the slowdown is more than just seasonal.

The agents surveyed continue to point to apparent unrealistic pricing in the market.

Estimated average time of properties on the market was still a lengthy 15 weeks and four days in the third quarter. While this is down from the previous quarter’s 17 weeks and one day, it would still appear far too long for an average, given that in the healthier market days of 2005/6 the average time was generally below two months.

Furthermore, the percentage of sellers having to drop their asking price remained stubbornly unchanged from the previous quarter at 81 percent, and the average price drop for that majority was estimated at 12 percent.

All of the above would suggest that that a select group of buyers, who possess the financial resources, generally have significant bargaining power. The exiWhile some people had been concerned that the 2008/9 recession would have a bigger impact on the so-called Black Population Group’s aspirant home buyers, our agent panel does not believe this to be the case. To the contrary, the Black group’s estimated percentage of total buying for 2010 to date is 32 percent, the highest percentage since this survey question started back in 2005.

The power that buyers have in the market at present is also supported by the financial pressure on sellers. When asked for the reasons as to why people sell, the survey respondents estimate that those selling in order to downscale due to financial pressure remain the most significant group, accounting for 25 percent of total sellers. This is higher than the previous quarter’s 20 percent reading.

One of the more positive readings coming out of reasons for selling is that agents aren’t reporting any surge in emigration. We had flagged an emigration selling surge as a risk around the time of the Eugene Terreblanche murder, given the very negative publicity that such events can generate. However, the World Cup was probably key in balancing sentiment and third quarter emigration selling as a percentage of total selling was estimated to have declined slightly from seven percent in the previous quarter to six percent in the third quarter.

Putting it all together, agents believe that residential demand has been declining in the second and third quarters of 2010 while their expectations for the short term have also started to deteriorate.

Affordability and access to finance are increasingly being cited as constraining issues on the buying side, while high degrees of financial stress-related selling also assist in keeping the balance of power tilted in favour of that group of buyers that is financially solid and has access to finance.

While agents report an increase in pessimism in the market, this is more due to economic conditions which are perceived to be deteriorating and not seemingly due to any negative political factors.

stence of a buyers' market still has much to do with ongoing household sector financial pressure, which restricts demand while also promoting financial pressure-related selling on a very significant scale. 52 percent of agents surveyed believe that "household incomes have got far behind average house prices", a percentage well up from the 38 percent reading in the corresponding quarter a year ago. In addition, when stating key factors influencing their near term expectations of market performance, agents are increasingly citing tight bank lending criteria or the restrictive National Credit Act as being negative factors for the market.

The financial pressure on the household sector continues to be reflected in changes in the composition of buyers. First time buyers, expressed as a percentage of total buyers, declined from a previous quarter’s 19 percent to 15 percent in the third quarter survey while single-status buyers are losing market share to couples who are able to pool their financial resources. Expressed as a percentage of total buyers, couples increased to 87 percent, from a previous quarter’s 85 percent, a percentage significantly higher than the 2007 estimates which were below 80 percent.

As one would also expect in tough economic times, primary residential demand remained high and unchanged at 90 percent of total buying at the expense of the non-essential buying forms of buy-to-let, buying for relatives and holiday buying. Back in 2007, primary residential demand was significantly lower at around 80 percent.

Article by: John Loos and Ewald Kellerman - www.iafrica.com