House price inflation slows for high earners
He added: “The FNB House Price Indices by area value band suggest that this relative shift in performances may be starting to happen, with the upper income area segment showing the most noticeable house price inflation slowing of late.”
The state of the market
“We have been pointing to broadly slower average house price growth in the FNB National House Price Index since a high reached around early-2014. This, we believe, had to come, given a multi-year deterioration in economic performance from 2012 onward, as temporary (and unsustainable) monetary and fiscal stimulus measures wear off and a myriad of structural constraints remain unaddressed,” said Loos.
According to Loos, “the deteriorating economic performance brings about a household sector which is more financially constrained and noticeably less confident.”
The recent FNB Estate Agent Surveys revealed that the high net worth area segment “has shown a noticeable recent softening in reported activity levels, and we have started to see such softening in average house price growth on the high end of the market too.”
The average house price by major metro value band are as follows:
· Upper income areas – R2.675 million
· Middle income areas – R1.443 million
· Lower middle income areas – R878 835
· Low income areas – R464 950
The results indicate that the average house price growth for the upper income area segment has slowed the most noticeably from the four categories, compared to the period 2013 to early 2015, when it achieved the highest price growth.
Loos pointed out: “On a year-on-year basis, we see that the upper income area segment’s average house price growth has slowed from 10.2% back in the third quarter of 2014 to 8.4% by the second quarter of 2015. Through 2013 to early-2015, this segment had the highest price growth of all four segments, as the high end played “catch up” to the lower priced segments. But in the second quarter of 2015, although the upper income area price inflation was still estimated to be on the high side of the four value bands’ spectrum, it had slowed the most noticeably of the four, and had moved to slightly below the 8.6% recorded for the middle income segment.”
He added: “By comparison, the lower middle income area segment inflated by 5.9% year-on-year, and the low income area segment by 6.4%, but we suspect that their price inflation rates may not remain below those of the middle and upper income area segments for too much longer.”
According to Loos, this slowing down in the average house price inflation for the upper income areas segment is a result of the influence of several other factors which have seen these households adopt a more conservative approach to their finances.
“Toughening economic times and rising interest rates have coincided with the FNB Estate Agent Survey pointing to a noticeable decline in the percentage of sellers selling in order to upgrade. This decline works, relatively speaking, against the higher end, with a smaller portion of households upgrading into those “more illustrious” areas,” explained Loos.
While the number of people selling in order to upgrade declines, those selling in order to downscale due to “life stage” continues to rise.
“This appears to be the biggest reason for selling property, and has reached an estimated 30% of total sellers by the second quarter of 2015, according to the FNB Estate Agent Survey,” revealed Loos.
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