JOHANNESBURG - An FNB estate agent survey has reported an increased percentage of home owners having to ultimately drop their asking price to make the sale.
In the first quarter of this year, the number of homeowners having to do this increased by 5%. This suggests that while there has been a slight increase in demand, supply has also surged. The survey has also shown a significant increase in the average time homes spend on the market prior to sale. This has gone from a previous 15 weeks and six days to 19 weeks and one day, in the first quarter of this year. It says this may suggest that stronger demand has not yet led to an improved market balance, possibly because it is being matched by stronger supply of residential stock on the market. From a property owner or investor's point of view, one would typically like to see a strong market. This implies that demand is strong relative to supply of residential stock. This would then lead to solid capital growth of the asset, contributing to total financial returns on one's property. However, the past few years have not seen any meaningful capital growth, due to generally weak demand relative to supply. In the past two quarters (covering the end of 2010 and the beginning of 2011), the survey has begun to show that estate agents are of the view that there has been a strengthening of housing demand. This may be due to two further interest rate cuts by the Reserve Bank in late 2010. From an agent residential demand activity rating of 5.66 (between a scale of one to ten), the level has increased to 6.07 in the first quarter of 2011. The agents surveyed have also reported a significant increase in the number of people viewing show houses that are perceived to be "serious buyers". The survey says there are signs that supply is becoming stronger. One is that FNB's valuers have on average been giving stronger supply ratings in their valuation reports in recent months. Estate agents surveyed from late 2009 and through to the winter of 2010 say "stock issues" have declined considerably in the fourth quarter of 2010 and the first quarter of 2011. The survey says there is evidence of improved supply of stock coming to the market too. This lies in the fact that agents have reported an increase in the percentage of people "selling for non-negative reasons". These include people selling to downscale for a variety of reasons, selling to relocate or selling to move closer to work or amenities. FNB says: "We believe that a greater portion of such categories of sellers are not in a rush to sell, compared to those selling in order to downscale due to financial pressure for instance, and thus are possibly more willing to bide their time, coming out of the woodwork in larger numbers when they perceive it to be a relatively good time to sell". The survey says a significant increase recently in sellers selling for "non-negative" reasons suggests there has been an improvement in the confidence that sellers have in their ability to getting their price, thereby bringing more aspirant sellers into the market. It says this apparent development on the supply side is part of the long residential market healing process. It should be expected that after an improvement in demand there should at some stage be an improvement in seller confidence as well. This would also serve to slow the pace of return to a better market balance, with this ultimately being reflected in a significantly shorter average time of properties on the market, along with a smaller percentage of sellers having to drop their asking price. This would also likely delay the return of respectable growth to house prices, but this is the slow nature of residential property market recoveries.