Smaller homes sought-after as property costs rise

02 July 2015 - 18:36 By RDM News Wire

The cost of running a home is impacting the property market‚ with more elderly people moving into smaller properties and fewer people selling to move into bigger houses. The latest Property Barometer report compiled by John Loos‚ household and property sector strategist at FNB‚ signals a more conservative approach is being adopted by the household sector.Reviewing the 2nd quarter FNB Estate Agent Survey‚ Loos said there was a further noticeable decline in the percentage of sellers selling in order to upgrade homes‚ suggesting that‚ while financial stress is not on the rise‚ financial “limits” may be being reached for many.“This is also apparent amongst a huge percentage of ‘oldies’ downscaling to smaller properties‚ not necessarily in financial trouble but feeling the cost of running a large home‚” he said.The survey found that “upgrade-related selling” accounted for only 13% of total home selling. This represents a further decline from the 17% of the previous quarter‚ and now noticeably down from the 20% high reached late in 2013. The perception of financial limits being reached‚ “which could set further growth limits on the residential market from here on”‚ was also fuelled by the ongoing high percentage of sellers who were selling in order to downscale‚ due to financial pressure.Loos said this category of sellers was the biggest one‚ and in the 2nd quarter 2015 survey it was estimated that a massive 30% of sellers fell into this category. “This form of downscaling refers to those sellers who desire a smaller home‚ usually either because they are getting older or because their offspring have left home.”“This 30% estimate represents a noticeable jump from the previous quarter’s 23% estimate.”The various cost escalations associated with property include: • Security costs in a high crime environment that may be deteriorating once more; • Municipal rates and tariff increases that consistently exceed inflation and household income growth.Then there are a myriad of insurance‚ maintenance and running costs associated with home ownership‚ he added.Loos noted there was no meaningful rise in financial stress-related selling yet.“The estimated percentage of sellers ‘selling in order to downscale due to financial pressure’ did admittedly rise slightly from 12% in the previous quarter to 13% in the 2nd quarter of 2015. However‚ such a small move can be mere data volatility‚ and the smoothed trendline is not rising yet. This 13% estimate remains far below the 34% high reached at a stage of 2009‚ as one would expect after some years of abnormally low interest rates…”What homeowners are doing‚ he believes‚ is practicing caution.“It appears as if the Household Sector is increasingly preparing itself for a tougher economic and financial period‚ and the widely expected resumption in interest rate hiking. This should come as no surprise‚ as economic growth has stagnated in recent years‚ and the SARB (Reserve Bank) has repeatedly warned of the possibility of interest rate hiking.”-RDM News Wire..

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