Young property buyers make a comeback
Young property buyers are reportedly making a comeback and supporting the residential property market in South Africa thanks to improved market conditions.
According to the FNB Property Barometer First Time and Age Group Property Buying Q2 2011, an estimated 25 percent of buyers were first-time buyers. This is up from 22 percent in Q1 2011 and higher than the low of 12 percent reached in Q3 2008 as the recession hit.
FNB Home Loans property strategist, John Loos, says this reflects improvement in the property market since the 2008 recession and the peak in interest rates.
“The percentage of young buyers would also suggest an environment still far more benign than early last decade where the 20 and the under age group reached a 20.6 percent peak in 2001,” says Loos.
He explains that since 2009, there has been evidence of something of a young buyer comeback both in the FNB Estate Agent Survey and the Deeds Office data for property purchases by individuals.
Long before tightened credit requirements in 2008, younger buyers started to decline in significance due to sharply rising house prices, which gave rise to an affordability issue.
Estate agents, according to the FNB Property surveys started to report a decline in the percentage of first-time buyers in 2006 while the Deeds Office data reported that the 30 and under age group peaked as a percentage of total buyers as early as 2001.
The Deeds Office data indicates that since early 2010 the younger age groups have been playing a more prominent role in supporting home buying demand. From a low of 15.1 percent as at the Q3 2009, the fourth quarter moving average percentage of “age 30 and below” buyers rose to 16.9 percent as at the Q2 2010. The 31 to 40 year age group’s percentage rose from 29.6 percent to 31.1 percent of total buying.
“Trends in buyer age groups can be an important indicator of the economic and interest rate environment.”
Younger buyers in their 20s and even some in their 30s have more flexibility. Often having not yet established a family, they have basic residential needs. They can opt to stay with their parents for longer or rent.
“Young aspirant buyers have accumulated fewer saving and are more sensitive to deposit requirements by banks and house price fluctuations,” says Loos.
He says there is a high degree of cyclicality in first-time or in younger age group home buying in general. These groups stay out of the market in greater numbers than their older counterparts and enter at a more rapid rate off a low base once conditions turn for the better.
The 61 year old and older age group is the least cyclical, being far less dependent on credit and having more wealth in store to weather the storms. This group saw its percentage of total buying rise sharply through the 2008 recession as younger age groups felt the pinch and pulled back, peaking at 13.56 percent for the four quarters to Q3 2009.
Loos says the 61 and older age group never reached the same high percentage of total buying that it did in 1998 (16.3 percent for the four quarters of that year).
That was the year that interest rates spiked to 25.5 percent prime. It was admittedly short-lived, and interest rates fell dramatically soon thereafter.
He adds that the composition of age group buying is an important indicator of the general environment, which includes economic growth, interest rates, inflation, bank lending criteria and home affordability.
Right now, we’re somewhere “midway between great and bad”, with young buyers having increased in prominence since 2008, but not having reached the same high percentages of the boom years. The less cyclical over 60s have declined in prominence, as they do in better times, but at 11.75 percent of total buying they are not yet near the low of 9 percent of total buying reached in 2006.
According to the FNB Property Barometer First Time and Age Group Property Buying Q2 2011, an estimated 25 percent of buyers were first-time buyers. This is up from 22 percent in Q1 2011 and higher than the low of 12 percent reached in Q3 2008 as the recession hit.
FNB Home Loans property strategist, John Loos, says this reflects improvement in the property market since the 2008 recession and the peak in interest rates.
“The percentage of young buyers would also suggest an environment still far more benign than early last decade where the 20 and the under age group reached a 20.6 percent peak in 2001,” says Loos.
He explains that since 2009, there has been evidence of something of a young buyer comeback both in the FNB Estate Agent Survey and the Deeds Office data for property purchases by individuals.
Long before tightened credit requirements in 2008, younger buyers started to decline in significance due to sharply rising house prices, which gave rise to an affordability issue.
Estate agents, according to the FNB Property surveys started to report a decline in the percentage of first-time buyers in 2006 while the Deeds Office data reported that the 30 and under age group peaked as a percentage of total buyers as early as 2001.
The Deeds Office data indicates that since early 2010 the younger age groups have been playing a more prominent role in supporting home buying demand. From a low of 15.1 percent as at the Q3 2009, the fourth quarter moving average percentage of “age 30 and below” buyers rose to 16.9 percent as at the Q2 2010. The 31 to 40 year age group’s percentage rose from 29.6 percent to 31.1 percent of total buying.
“Trends in buyer age groups can be an important indicator of the economic and interest rate environment.”
Younger buyers in their 20s and even some in their 30s have more flexibility. Often having not yet established a family, they have basic residential needs. They can opt to stay with their parents for longer or rent.
“Young aspirant buyers have accumulated fewer saving and are more sensitive to deposit requirements by banks and house price fluctuations,” says Loos.
He says there is a high degree of cyclicality in first-time or in younger age group home buying in general. These groups stay out of the market in greater numbers than their older counterparts and enter at a more rapid rate off a low base once conditions turn for the better.
The 61 year old and older age group is the least cyclical, being far less dependent on credit and having more wealth in store to weather the storms. This group saw its percentage of total buying rise sharply through the 2008 recession as younger age groups felt the pinch and pulled back, peaking at 13.56 percent for the four quarters to Q3 2009.
Loos says the 61 and older age group never reached the same high percentage of total buying that it did in 1998 (16.3 percent for the four quarters of that year).
That was the year that interest rates spiked to 25.5 percent prime. It was admittedly short-lived, and interest rates fell dramatically soon thereafter.
He adds that the composition of age group buying is an important indicator of the general environment, which includes economic growth, interest rates, inflation, bank lending criteria and home affordability.
Right now, we’re somewhere “midway between great and bad”, with young buyers having increased in prominence since 2008, but not having reached the same high percentages of the boom years. The less cyclical over 60s have declined in prominence, as they do in better times, but at 11.75 percent of total buying they are not yet near the low of 9 percent of total buying reached in 2006.
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