SOUTH Africa’s "middle income” house price segment, which is the major metro price segment just above R1-million, has developed into something of a relative sweet spot in the residential market, according to FNB’s home buying estate agent survey by segment.
While the indices continue to point to the "affordable segment” performing the best, this was now only by a slight margin.
"After the ‘relief rally’ that we saw in 2010, estimated house price growth in all of the four major metro area value band indices showed something of a tapering off,” FNB property strategist John Loos said.
"However, in recent quarters, there were signs that certain segments were starting to turn upwards in terms of price growth, which partly ties in with the recent rise in price growth in the FNB national house price index whose data is more current,” he said.
The area value band that had appeared to defy gravity the best last year was the so-called affordable segment, which included a group of lower-priced metro areas (including many of the so-called former black townships) with an average price of R385199 in the first quarter of this year.
The affordable area value band saw estimated average price growth of 4.9% in the first quarter, mildly higher than the 4.7% in the previous quarter.
"However, starting to play catch-up to the affordable areas appears to be the middle income areas, according to the middle income areas price index. With an average price of R1.139-million, this index has seen its price growth accelerate mildly from a low of 3.3% in the third quarter of last year to 4.8% by the first quarter of this year. This price growth rate is now very similar to that of the affordable areas index,” Loos said.
By comparison, the lower income area band was flatter at 2.6% year- on-year growth, while the upper income area index was yet to turn for the better, showing only marginal average price growth of 1.5% in the first quarter.
"It must be emphasised, however, that the differences in price growth between the segments in recent times remains marginal, and as yet the average price growth of the middle income segment has only managed to more or less catch up with the affordable segment and neither segment’s growth rates are hugely impressive.”
However, the middle income segment was the first of the three higher value segments to show improvement late last year, and this segment also had the healthiest "fundamentals”.
In terms of demand ratings for the four quarters up until and including the first quarter of 2012, agents surveyed in "lower and middle income” areas appeared more optimistic in terms of their perceptions of demand strength in their areas, compared to those areas classified as "upper income” and "high net worth”.
Over the most recent four quarters, the middle income segment had averaged the highest demand rating of 6.1 (on a scale from one to 10), having just overtaken the lower income segment which averaged 6.02.
By comparison, the upper income segment has languished at an average demand rating of 5.53, now significantly lower than its 2010 levels of around 6, and at a similar weak level to the high net worth segment over the period.
The middle income segment was also the most improved in terms of the balance between supply and demand, or the estimated average time of homes on the market prior to being sold, although the lower income segment once again outperformed the rest over the four quarters up until the first quarter of this year.
The lower income segment averaged an estimated time of homes on the market of 13.6 weeks and was the most stable of all the segments since 2009.
"But, from the average time peak reached around mid-2009, the middle income segment is the most improved, averaging 15.3 weeks over the past four quarters, compared to a peak of 18.2 weeks at the third quarter of 2009,” Loos said.
By comparison, the high income segment averaged 18.5 weeks over the past year and the high net worth segment averaged 20.7 weeks. Finally, agents also pointed to the middle income segment as having the lowest "net financial strength-related downscaling due to financial pressure”.
"Although no segments can currently claim to be ‘shooting the lights out’, it would appear from our surveys and price data as though something of a ‘relative sweet spot’ has been developing in the major metro area segment with average price levels not far above R1-million.” – I-Net Bridge