More and more older homeowners are downscaling and swapping their large homes for smaller ones, possibly prompted by high housing costs and improved prices.
John Loos, property market strategist at FNB Home Loans, said according to the third quarter FNB Estate Agent Survey for 2011, there was a marked increase in the percentage of sellers selling in order to downscale because of “life stage”.
Loos said the trend mainly involved those households whose children had grown up and left home, as well as to those who were ageing and for whom a large home might no longer be practical.
“When we started questioning agents as to the reasons that people were selling homes, back at the beginning of 2008, they estimated that 14 percent were doing so in order to downscale due to life stage,” said Loos. Since then, this reason for selling has steadily risen, reaching its highest level yet of 23 percent in the third quarter of 2011.
“It is conceivable that these households were holding back on selling in 2008 due to the extremely weak nature of the market at that stage, with a recession in play as well as high interest rates at the time,” said Loos.
He said that apart from those doing so owing to financial pressure and those holding back on selling until market conditions improved, it was not clear what had led to the increase of “life-stage sellers”.
However, an important factor to be considered was an ageing population, especially the middle-and upper-income sections that drove the formal property market, along with sharply rising housing costs. A second major possible contributor was the steadily rising costs related to housing such as municipal rates and utilities tariffs.
Loos said last month’s overall consumer price inflation (CPI) rate was 5.3 percent and, by comparison, the CPI for housing was rising by 6.8 percent year-on-year.
“Dissecting the components of the housing CPI, one sees that the key contributors to its high inflation rate are electricity, inflating at 17.2 percent, and water and other services (includes municipal rates) rising at 9.2 percent.
“Houses, therefore, are steadily becoming more costly to run relative to other consumer items. For South Africa’s over-fifties, who are steadily growing as a percentage of the population, why not downscale and reduce costs?”
He said that first-time buyers had the flexibility to stay out of the homeowner market until economic or interest rates had improved, but the middle-to-upper-income over-fifties had a different type of flexibility.
“They often have oversized homes that were bought for a family which has since moved out, or homes bought for themselves for an earlier life stage where they were far more active.
“While such large homes may be nice, rising home-related costs may be steadily turning them into an inconvenience for a group who don’t always need them.
“Therefore, the mild improvement in the residential market since 2008 may well have played something of a role in driving this ‘life stage’ group of sellers who are not always necessarily under pressure to sell.”
Meanwhile, another trend noticed by estate agents is an increase in the number of black home buyers entering the South African residential property market, with the number of black home-loan applicants now exceeding white applicants.
Saul Geffen, chief executive of ooba, said the total number of home-loan applications for black buyers represented 45 percent, compared with 41 percent of white home buyers.
Black buyers, however, only represented 39 percent of the number of the total approved home loans, while whites represented 47 percent.
“This ratio has changed considerably since last year, where blacks only represented 30 percent and whites 56 percent of approved home loans.
“When it comes to first-time home buyers, the trend is clearly skewed in favour of black applicants. Currently, first-time home buyers represent 49 percent of the total number of applications, and 44 percent in approved loans.
“Of these first-time applications, 59 percent of the total number are for black applicants, compared to 27 percent for white applicants.
“When it comes to approved home loans, 55 percent of the total number of first-time home buyer approved loans are for black applicants compared to 31 percent for whites. This ratio has also changed considerably since last year, where black applicants only represented 48 percent and white applicants 36 percent of approved home loans,” said Geffen.
He added that the higher levels and sustained increases in black buyers could be attributed to the changing economic demographic in the country, as well as the fact that buying levels were higher at the lower to middle-income levels and for first-time buyers.
“The shifting economic base in South Africa, largely influenced by the emerging black middle class, means the racial demographic of home buyers is changing.
“The growth in first-time applications from black applicants can be attributed to improved property market conditions, a reduction in interest rates of 650 basis points since 2008, coupled with subdued property price inflation, improved bank approval rates and lower deposit requirements.” - Cape Argus