Homeowners sell up and rent to escape stress

One in every four houses sold in the second quarter of this year were sold to allow the homeowner to downscale due to financial pressure.

And 51 percent of those selling homes because of financial stress exited the home ownership market and moved into rented premises, according to the second quarter FNB estate agent home-buying survey.

Economic and financial stress and general pessimism has shot to the top of the list of key factors influencing the near-term expectations of estate agents, with 31 percent of agents citing this as a key issue.

John Loos, a property strategist at FNB Home Loans, said this represented "a very significant" change in the prominence of the key factors influencing the expectations of estate agents.

In the first quarter interest rates had been cited as the key positive factor influencing the expectations of estate agents, but this factor was relegated to fourth place in terms of importance in the second quarter.

Loos said the fact that agents pointed to widespread financial stress while interest rates were so low "bodes ill for households when interest rates do ultimately rise once more".

"It would suggest the household sector has not yet recovered from the 2008/09 recession."

Seasonality was the second most important factor in the second quarter, followed by the National Credit Act (NCA).

Loos said residential property demand was seasonal and could typically weaken during the winter months and the NCA was generally seen as being negative because it was perceived as the "key reason for the limited amount of loans still being granted".

However, Saul Geffen, the chief executive of mortgage originator ooba, said banks were continuing to relax their lending criteria and the average initial decline ratio fell 5.8 percentage points to 47.1 percent last month from 52.9 percent a year ago.

Geffen said this indicated an increased proportion of home loan applications were being approved.

Loos said the fourth-most important factor was interest rates and it was generally still viewed as a positive factor because they were so low.

However, a diminishing number of agents now regarded interest rates as a positive factor.

Agents believe there has been a rise in significance of selling "in order to downscale due to financial pressure" to 25 percent of the total number of sellers in the second quarter from 22 percent in the first quarter of this year.

The second quarter survey pointed towards some slowing in residential demand.

Loos said this reason for selling must be seen as providing strong support for supply of property to the market. Some would argue that a sale in order to downscale due to financial pressure should be followed by a purchase of a cheaper property shortly thereafter, negating the boost to supply of property after the initial sale.

However, Loos said that 51 percent of sellers selling for financial stress-related reasons actually exited the market and moved into property rental "for the time being, thus leaving a gap" in the market.

Loos said first-time buyers entering the market could fill a part of the gap left by those exiting, adding the percentage of first-time buyers had increased further to 25 percent of total buying in the second quarter from 22 percent in the previous quarter.

However, Loos said a relatively low and unchanged 5 percent of agents cited lack of stock of properties on their books as a constraint.

Loos said the second quarter survey pointed towards some slowing in residential demand while also suggesting a deterioration in buyer confidence and the financial position of households after two relatively positive summer quarters

The survey, undertaken last month, involved a sample of estate agents predominantly from the six major metros and aimed to obtain their perceptions of residential property market conditions.

Business Report

Posted at 09:36AM Jun 17, 2011 by Editor in Residential  |  Comments[2]