Gauteng remains the most price-realistic of the major metro regions

Gauteng, the strong point within SA in terms of realism and balance

By John Loos

FNB Property Analyst

Nelson Mandela Bay, where we have seen the average time on the market record 20 weeks and 2 days in the 3rd quarter of 2017, virtually unchanged from the 20 weeks and 3 days in the previous quarter.

The Gauteng region, on the other hand, has been the “solid” region, having remained very near to an average time of 12 weeks on the market. However, it was this major region that showed a slight market weakening from quarter to quarter, with a slight increase in average time of homes on the market from 12 weeks in the 2nd quarter to 12 weeks and four days in the third quarter of 2017.

The lower end is the “relative hot spot”

Examining the average time of homes on the market by Income Area segment, we see very wide differentials between the Lower Income Area end and the High Net Worth end, with the Lower Income end having far shorter average times on the market.

While high end homes do generally take longer to sell, we believe that the wide differential, i.e. 25.07 weeks in the case of the High Net Worth segment and 9.29 weeks in the Lower Income segment in the case of South Africa, also in part reflects a relatively stronger lower end of the market.

We say this because there has been a clear widening of the gap between the high and the low end as the market has weakened in recent years. Whereas the gap between Low Income and High Net Worth Areas’ average time on the market was 4.32 weeks in 2014, the gap had widened to a massive 14.48 weeks for the year 2017 to date.

On a national average basis, the rise in average time of homes on the market prior to sales continues gradually, reflecting a housing market moving away from equilibrium.

However, on a regional basis the picture remains divergent, with the Gauteng Metros appearing still far closer to equilibrium than certain of the Coastal Metros, notably Ethekwini which has quite a lengthy average time on the market by comparison.

The City of Cape Town market, renowned for its strength in recent years, appeared to be headed towards a longer average time on the market in the 2nd quarter of 2017, but made something of a comeback in the 3rd quarter, suggesting that its recent period of market strength may not be over yet.

Given the condition of the SA economy at present, it is likely that the rising national trend in average time on the market will continue. This should translate into further real house price decline (“real” referring to house price growth adjusted for CPI inflation) in the near term, as home sellers are gradually forced into greater price realism in a time of mediocre demand.

But the SARB’s “gradualist” approach to interest rate moves enhances the probability of the correction in real house prices, to a stage where the market moves back into equilibrium, being a relative gradual and “smooth” one. This is hopefully a very different situation from the shock to the market, accompanied by severe financial stress, in 2008 when it went from “boom to bust” in a relatively short space of time.