Half of sellers scaling down due to financial pressures are opting to rent
The sample of agents surveyed in the latest FNB Estate Agent Survey estimated that 11% of home sellers were selling in order to upgrade to a better property during the 3rd quarter of 2017. This is down from the prior quarter’s 13%, and now very significantly lower than the last multi-year high of 20% reached in the final quarter of 2013, just before interest rates started to rise in January 2014.
Despite economic weakness and a mild rise in interest rates from early-2014 to early-2016, there has only been a minor increase financial stress-related home selling. The estimated percentage of sellers “selling to downscale due to financial pressure” was slightly higher at 14% in the 3rd quarter of 2017, up from 13% in the prior quarter and mildly higher than the 11% multi-year low point reached in the 3rd quarter of 2015. For perspective: In Q2 2009 this percentage reached a high of 34% high, shortly after the last recession and previous interest rate hiking cycle peak.
The agents estimated the percentage of this seller group intending to “rent down” to have increased from 40% in the 1st quarter of 2017 to 49% in the 3rd quarter, the 2nd consecutive quarter that this percentage has risen.
The rental option is often the cheaper and lower cashflow risk option, so a rise in the percentage intending to “rent down” as opposed to “buying down” points to some decrease in confidence amongst this group of financially pressured sellers.
The City of Cape Town region appears least plagued by financial stress, with the lowest estimate of financial pressure-related downscaling to the tune of 8.3% for the two winter quarters. The two worst performers were Joburg, with an estimated of 15.9%, and Nelson Mandela Bay with 14.8%, followed by Ethekwini’s 12.8% and Tshwane’s 12.5%.
According to FNB the rise in estimated percentage of households selling in order to downscale due to financial pressure was predictable due to the increase in bank’s home loan arrears as a percentage of total loans. This increase in arrears percentage is not expected to continue, however, due to the slight decrease in interest rates in July 2017 and the decline of the Household Sector Debt-Service Ratio.