FNB Estate Agent Survey - Home Buying Market 1st Quarter 2014 Survey Results

1. FNB Estate Agent Survey - Home Buying Market1st Quarter 2014 Survey Results 9 April 2014

2. Main Points • The 1st Quarter Residential Activity Indicator rose, from the previous quarter’s 6.27, to 6.76. • Year-on-year increase in the Residential Activity Rating in the 1st quarter of 2014 was +2.89%, slower than the previous quarter’s +6.5%. This is the 7th quarter of increase out of the past 9 quarters. • We saw a further rise in the percentage of agents citing stock constraints as a factor influencing their near term expectations, to 18.5%, from a previous quarter’s 16%. • From a 4th quarter 2013 estimate of 15 weeks and 1 day, the average time on the market in the 1st quarter 2014 survey declined to 13 weeks and 6 days. • Percentage of sellers being required to drop their asking price to make a sale, also declined further from 85% previous to 81%. • Average percentage asking price drop on properties where a price drop is required to make the sale diminished from -9% in the 4th quarter survey to -8% in the 1st quarter of 2014. • In the 1st quarter survey, 30% of agents expected activity to increase in the next 3 months, down from 34% in the previous quarter, while 60% expected it to stay the same and only 10% expected a decrease in activity. • Aggregating the various price growth/decline expectations over the next 12 months, the net expected price movement by agents is a modest +3.7%.

3. Further Strengthening in Residential Activity Indicator • The 1st Quarter Residential Activity Indicator rose, from the previous quarter’s 6.27, to 6.76. • Seasonally-adjusted version of the Indicator also rose mildly further from 6.42 to 6.47 over the 2 quarters. • The rise suggests that strengthening trend in the market through 2012 and 2013 is still intact. • Activity Rating level remains in the “stable” bracket (a level from 4 to 6), but is now pushing closer to the “Positive” bracket of 7 to 8. • The 1st Quarter activity rating is the highest rating since the 1st quarter of 2005

4. Rate of increase in Demand Activity Indicator slightly slower than previous • Year-on-year increase in the Residential Activity Rating in the 1st quarter of 2014 was +2.89%, slower than the previous quarter’s +6.5%. • This is the 7th quarter of increase out of the past 9 quarters.

5. Key survey questions also point towards further improvement in price realism and the balance between demand and supply in the 1st quarter of 2014.

6. Stock Constraints intensify • Along with the rise in residential activity levels over the past 2 years, which reflects a rise in residential demand, has come a rise in “stock constraints” experienced by certain estate agents. • In the 1st quarter of 2014, we saw a further rise in the percentage of agents citing stock constraints, as a factor influencing their near term expectations, to 18.5%, from the prior quarter’s 16%. • This comes after an already considerable rise in 2012’s stock constraint percentage over that of 2011.

7. Average time of properties on the market declines • One indicator of where the market is in terms of seller pricing realism/ balance between demand and supply is the estimated average time that properties remain on the market prior to sale. • From a 4th quarter 2013 estimate of 15 weeks and 1 day, the average time on the market in the 1st quarter 2014 survey declined to 13 weeks and 6 days. • This is the lowest average time on the market since the 1st quarter of 2010. • This continues to point to a broadly declining trend in the average time on the market since 19 weeks and 1 day high in early-2011.

8. Less sellers dropping their asking price to make the sale • Another indicator of seller pricing realism in the market, i.e. Percentage of sellers being required to drop their asking price to make a sale, also declined further from 85% previous to 81%. • While moving in the right direction it must be said that this percentage remains far above the level of around 30% back in early-2004.

9. The average required asking price drop is diminishing • We also ask agents to estimate the average percentage asking price drop on those properties where a price drop is required to make the sale. • This average drop diminished from -9% in the 4th quarter survey to -8% in the 1st quarter of 2014. • This is now significantly less than the estimated average percentage drop of -13% in late-2011.

10. Slight improvement in perceptions of affordability • What we had early in 2014 was only a very slight change to the average agent perception of residential affordability. • There was a slight decline in the percentage of agents perceiving “income levels to be far behind house prices, from 12% in the preceding quarter to 11% in the 1st quarter 2014 survey. • Those perceiving “income levels to be a little behind house price levels” also declined slightly from 48% in the preceding quarter to 47%, while the percentage of agents believing that “income levels have kept up with prices” rose from 40% to 41% over the 2 quarters. • These agent affordability perceptions are vastly improved on a stage back early in 2008, where only 8% of agents believed that income levels had kept up with prices and 72% believed that income were far behind prices.

11. Near term agent expectations regarding activity remain modest • Agent confidence regarding near term prospects remains noticeably above the low points of 2007/8 and 2011, but still not “overly strong”. • In the 1st quarter survey, 30% of agents expected activity to increase in the next 3 months, down from 34% in the previous quarter, while 60% expected it to stay the same and only 10% expected a decrease in activity.

12. Interest rates are the key negative factor influencing agent near term expectations • When asking agents for the factors influencing their near term expectations, “interest rates” were by far the most common factor. • Interest rates were generally perceived as a negative factor. • This was followed by 26% of agents citing stock issues as a factor, with the majority (18%) citing stock shortages (vs too much stock). • The 3rd key factor on the list was “Economic Stress/General Pessimism”, which at 15% is now higher than the 11% citing “Consumer Positive Sentiment”.

13. Agent expectations on house price inflation also modest • Agents have perhaps surprisingly low aggregated expectation of average house price growth over the next 12 months. • The most popular survey response was a 1-2% price increase, which is the view of 20% of respondents, while 18% expect 3-4% increase, 14% expect a 5% rise, 10% anticipate a 6-9% growth rate, 9% a 10% increase, and only 1% foresee a double-digit rise. • Aggregating the various price growth/decline expectations, the net expected price movement is +3.7%.

14. Conclusion • In summary, therefore, early in 2014, estate agents surveyed continued to point to a very comfortable and still- improving residential property market, a broad trend that has been in place since early-2012. • They perceive the balance between demand and supply to be gradually improving, as reflected in a declining average time of properties on the market, stock constraints mounting, and gradually improving price realism. • However, they do not yet point to a market that could be classified as “booming or irrational”, • They do not appear to anticipate such a market in the near term, expecting house price growth of only 3.7% over the next 12 months, which would be below our expectations for consumer price inflation and thus negative in real terms.

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