Property Barometer – First Time Buyers In The Current Market

The 5% FNB House Price Index inflation rate suggests no apparent need for “first time buyer panic” at present. But there is a need for first time buyer caution, and perhaps a little less obsession with home ownership.

FNB's estate agent survey for the first quarter of this year revealed the percentage of first-time buyers expressed as a percentage of total home buyers declined slightly to 25 percent from a high of 28 percent in the previous three quarters.

John Loos, a household and property sector strategist at FNB Home Loans believed the key cause of first-time home buyer panic was the strong belief by many that they had to own a home and the rental option "is not cool".

He said buyer panic could lead to hasty buying decisions, which later cost some homeowners dearly.

Prospective first-time home buyers should consider the rising costs associated with home ownership and the possibility of further cost increases, especially in interest rates on debts and rates and tariff hikes.

"These cost increases don't necessarily mean that one should not buy a home. But they may suggest that home buyers should buy 'well within their means' to be able to absorb such potential cost increases, or that they should possibly 'wait it out' until such time that they are financially strong enough," he said.

Loos said buyer panic was to be expected during the 2004/05 period when average house price inflation peaked at extreme levels of more than 30 percent year on year.

But Loos suggested that if South Africans did not see home ownership as such a priority and instead had a different mindset where renting was more popular, home buying demand might have faded earlier in the boom as affordability deteriorated, causing the boom to fizzle out earlier.

Loos said the estimated percentage of home sellers selling to downscale due to financial pressure was another statistic that was of concern and he believed it was related to the strong culture of home ownership and periodic bouts of buyer panic.

The percentage of people selling to downscale due to financial pressure had dropped dramatically from 34 percent in 2009 to 12 percent in the first quarter, which Loos said was still significant given that interest rates had been at multidecade lows in recent years.

Loos said this downscaling process was costly, with high transactions costs and disruption caused by moving house.

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