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Bugle Sales Talk Editorial

Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2015-04-10
6th - 10th April 2015

The reasons people sell residential properties can give us insight into the trend and strength of a market and what we can expect in the future. The FNB Estate Agent Survey conducted in the first quarter does provide this insight. It is useful to categorize the reasons for selling into "Pro-Cyclical Reasons" - those reasons that tend to become more significant as the property cycle strengthens, "Counter-Cyclical Reasons" - those categories that decrease in significance in better economic and market times and "Non-Cyclical Reasons" which have no obvious correlation with the economic cycle. In total eight reasons, and their respective percentages as of the first quarter of 2015, have been provided through FNB's survey.

These are: 1. Downscaling due to financial pressure - 12% (the sole counter-cyclical reason); 2. Selling in order to upgrade - 17%; 3. Downscaling with life-stage - 23%; 4. Relocating within South Africa - 8%; 5. Selling in order to move closer to work or amenities - 8% (these four reasons are regarded as pro-cyclical); 6. Emigrating - 3.6%; 7. Change in Family Structure (Death, Divorce etc.)- 16%; and 8. Moving for Safety and Security Reasons - 11% (these last three are considered non-cyclical reasons).

We will consider in more detail the four pro-cyclical reasons, starting with the selling in order to upgrade reason. This accounted for 17% of total home selling, and is slightly down from the 18% recorded in the previous four quarters and the high of 20% recorded in the 4th quarter of 2013. The sellers selling to downscale due to life-stage are the single largest percentage of sellers at 23%. This is slightly lower than the multi-year peak of 26% recorded in the 2nd quarter of 2014. These important sellers are usually older, their children have left home, they are not financially stressed and can typically wait for a good time to sell their home. These first two groups of sellers make up 40% of all sellers and are showing clear signs of settling down rather than additional growth.

The third pro-cyclical reason for selling is Selling in order to move closer to work/amenities. This category plummeted to 4% in the 3rd quarter of 2008 as the recession hit, and then rose to a significant 10% in early 2013 and reached 10% again in the 2nd quarter of 2014. Since then the importance of this category has decreased to 8% indicating the lack of further growth from this pro-cyclical aspect. The fourth pro-cyclical reason is Selling in order to relocate to another region. Currently at 8%, it has been consistently between 8-9% since early 2013, but has improved from the low of 6% in 2009. It is interesting to combine these four pro-cyclical reasons and to assess their overall impact on sellers. Currently they make up around 56% of total selling. Although this is well up from the 33% they constituted in the 3rd quarter of 2008, they are down in significance from the recent peak of 61% reached in the 2nd quarter of 2014.

Although we see limits to the growth provided by the pro-cyclical elements, the counter-cyclical measure of Downscaling due to financial pressure has so far not indicated any meaningful increase in financial stress related selling. Currently measured at 12%, the trend is firmly downwards since the peak of 34% reached in 2009 as households have "deleveraged" and strengthened their balance sheets. Regarding the non-cyclical reasons for selling we note that Emigration related selling remains below 4% and relatively low and Selling due to a change in family structure has increased to 16%.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.