According to First National Bank Household and Property Sector Strategist John Loos, early signs may be emerging that housing demand conditions are improving beyond the strong summer seasonal factors. Loos noted that summer is seasonably stronger within the housing market.
“Key leading economic indicators are pointing in the direction of a near term economic growth strengthening,” revealed Loos. As a result of this, there will likely be a strengthening in employment, contributing to household sector disposable income growth.
Among the factors contributing to a more affordable housing market is the sustained interest rate of 7% since March 2016, as well as the recent decline in real house prices. “Improved housing affordability combined with improving economic growth should be a catalyst for some strengthening in the demand for housing,” stated Loos.
However, not all factors are yet pointing to an improved housing market. Loos highlighted that while one of FNB’s key residential indicators suggests the housing demand may be strengthening, two other indicators have not yet shown this.
The strengthening market
“Although the FNB Residential Activity Indicator is not strictly an indicator of housing demand only, but rather of all activity in an estate agent’s world, we believe that its direction does reflect housing demand conditions most of the time.
“We believe, therefore, that it can be used as a useful demand-side indicator. And the fact that it has shown a rise in the past two quarters suggests to us that there has been some increase in housing demand levels of late, after a prior slowing trend,” said Loos.
However, Loos pointed out that the FNB Estate Agent Survey does not yet point to rising residential demand. In the survey, respondents were asked for an estimate of how many ‘serious viewers’ per show house they experience or perceive to have.
“In the first quarter of 2017, this estimate had declined from 11 in the prior quarter to 9.92 serious viewers per show house.
“Normally, we would expect a rise in this estimate if residential demand increases. However, it can at times be that an improvement in asking price realism, speeding up buyer decisions and lowering time of homes on the market, could imply less viewers per show house for a short period of time.”
Despite the belief by FNB that the property market is looking up, Loos noted that as yet there is no clear evidence of rising residential demands based on the latest indicators.
“Arguably the most leading indicator of the three [indicators], namely the Residential Activity Rating, has turned noticeably higher in the past two quarters. This activity rating, admittedly, does not only refer to demand-side activity in the housing market, but to supply-side activity too. However, we do believe that its recent rise is driven to a significant degree by a rise in housing demand, which should filter through into growth in residential transactions as well as new mortgage lending with a lag. We believe this to be the case because, viewing key leading economic indicators, we see signs of near term economic strengthening,” said Loos.
He added: “Stronger economic growth, along with no further interest rate hikes since March a year ago, drive our the belief that residential activity is rising largely due to an increase in residential demand.
“Strengthening economic growth should lead to some strengthening Household Sector income growth, while the combination of no further interest rate hikes along with house prices declining in real terms means that housing affordability is improving gradually. These factors should be expected to cause some rise in housing demand.”
