Estate agents' survey shows relative strength at the lower-priced end

The survey continues to show agents surveyed in "Lower Income" areas being the most optimistic in terms of their perceptions of demand strength in their areas*. The survey asks agents to place the areas that they serve into one of four categories, i.e. High Net Worth areas (average price = R2.68m), Upper Income areas (average price = R1.8m), Middle Income areas (average price = R1.21m), and Lower Income areas (average price = R599,000). As one moves up the income area ladder, agents surveyed become less optimistic, with agents in the High Net Worth areas having been consistently the least optimistic through 2010 and the first half of 2011.

It makes use of two-quarter moving averages when depicting segment results, in order to boost sample size. For the two quarters to the second quarter of 2011, the Lower Income demand rating (on a scale of 1 to 10) came out at 6.21, followed by Middle Income areas on 5.97. Upper Income area agents gave a rating of 5.84, while High Net Worth area agents were significantly lower on 5.35. All four segments' ratings are down on the previous quarter.

Through 2010 and 2011, the High Net Worth segment's demand rating has been noticeably weaker than the other three segments, whose ratings are more closely grouped together.

Average time to sell

Using the average time of homes on the market prior to sale as a proxy for the balance (or imbalance) between demand and supply, the two higher priced segments once again show a weaker situation than the more affordable two.

One must interpret this result with caution however, as higher end homes do typically have a longer time on the market even in healthy times. There is a noticeable widening in the gap between the average time of the Lower Income segment (the only segment to have shown a decline in average time on the market since about a year ago) and the High Net Worth segment, late in 2010, before some mild narrowing in the most recent survey.

High Net Worth segment homes average an estimated 20 weeks on the market for the 1st 2 quarters of 2011, Upper Income segment homes 17.9 weeks, Middle Income homes 16.4 weeks, and Lower Income homes 13.9 weeks, according to the survey.

Shift in wealth

In 2011, agents almost across the board may be implicitly pointing to the distribution of wealth between households shifting more significantly. What is observed are significant increases in the percentages of sellers selling in order to downscale due to financial pressure, but simultaneously a very significant increase in the percentage of sellers selling in order to upgrade.

The income segment, whose members as a group now appear most financially healthy, according to the survey, is the Middle Income segment. From the first quarter to the second quarter, this segment's percentage of sellers selling in order to downscale due to financial pressure remained virtually unchanged at 21%. Simultaneously, this segment has had a massive estimated increase in the percentage of sellers selling in order to upgrade from 11% at end-2010 to 19% in the second quarter of 2011. The segment's estimated upgrading percentage is now almost on par with the financial pressure-related downscaling.

The other three segments all have significantly more estimated downscaling than upgrading, the High Net Worth segment having 23% downscaling versus 16% upgrading, the Upper Income segment 24% downscaling versus 14% upgrading, and the Lower Income segment a massive 32% downscaling versus 17% upgrading.

However, the "Lower Income" segment has a significantly greater slice of the first time buyer market to give it support, and offset a possible greater level of financial stress than the higher segments..

Price trends

With regard to price trends, FNB has created its own four area value band indices for residential-dominated areas in the six major metros, grouped according to average prices of areas and using Deeds data for transactions by individuals in the six major metro regions with which to estimate these.

Since the peak in the "relief rally" (or mini-recovery) in the first half of 2010, estimated house price growth in all four of the Major Metro area value band indices has shown a tapering off. Broadly speaking, however, the better price growth since early 2010 has been in the lower priced value bands with average area values below R1m.

On a year-on-year basis, Affordable Areas' (average price = R376,974) average price grew by 7.4%, and Middle Income Areas' (average price = R724,136) average price by 5.7% in the 2nd quarter of 2011. By comparison, the two higher priced area value bands registered slower price growth, with Upper Income Areas (average price = R1.092m) showing 3.1% year-on-year growth and the Top End areas (average price = R1.889m) showing 4.5% increase.