The current state of our property market has recently been described in the FNB House Price Index Report for February 2015 as being in a "solid" space. House prices grew by 6% in February, slightly down from the 6,3% growth recording in January but with January CPI inflation dropping dramatically from 5,3% to 4,4%, our real house prices have edged up to a 1,8% year-on-year growth rate from a 1,2% growth rate in the previous month. South Africa is a noted winner on a global stage when it comes to defining the beneficiaries of a massive decline in the price of oil.
The solid state of our property market means that our demand strength rating is in balance or equilibrium, as economists like to call it, with our supply strength rating. Remarkably demand and supply strength ratings intersected last in 2008 and since then supply has dominated demand, until very recently when our overall demand rating has edged slightly ahead of supply. When demand exceeds supply prices can be expected to grow. There is nothing like scarcity of a certain property class to drive pricing upwards. Along the Dolphin class the scarcity of vacant land has become evident over the past three months and pricing is being forced upwards in response.
To avoid being carried away by the bulls, economists point to our leading business cycle indicator demonstrating negative growth of -1% in December and StatsSA numbers for electricity available for distribution in South Africa declining in December by -1,6% , the 8th consecutive month of year-on-year decline. Engineers have been warning for years about a power crunch in SA as our historic decisions not to increase capacity now plays out. As property sales people we are naturally optimistic and our experience at the coal face over the past two months is indicating a surge in buying behavior within our region. This is supported by the FNB Residential Market Activity Indicator, which on a scale from 1 to 10, raced ahead to 6,8 - the highest rating since 2005. We are cautious in using the word "boom", but that is exactly what it looks and feels like.
The national average time that a property is on the market, across all transactions, is currently down to 12 weeks and 3 days, and edging towards the 8 weeks regarded as a reasonable benchmark during an active market and which was last seen during the 2005 to 2007 boom period. The proportion of properties sold at less than their asking price is currently 81% and starting to trend downwards. The average percentage drop in asking price by sellers in order to secure a sale has been a steady -8% for the past four quarters. As the market improves, large decreases in asking prices become less pronounced.
The first time buying activity expressed as a percentage of total buyers is currently 27% - a very significant driver of overall demand. A high percentage of first time buyers in a market is a healthy sign and indicative of strong supporting demand. Mortgage finance providers and bond originators will be enjoying that as most first time buyers make use of mortgage finance. Our prime interest rate remains stable at 9,25% - still a historically low level as you have to go back to the early 1970's to see interest rates at consistently lower levels. Our overall residential property market is in a great place currently and showing signs of further improvement.
For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.
Principal - Seeff Dolphin Coast
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