FNB Estate Agent Survey

- Home Buying Market

1st Quarter 2014 Survey Results

9 April 2014

Main Points

• The 1st Quarter Residential Activity Indicator rose, from the previous quarter’s 6.27, to 6.76.

• Year-on-year increase in the Residential Activity Rating in the 1st quarter of 2014 was +2.89%, slower than the previous quarter’s +6.5%. This is the 7th quarter of increase out of the past 9 quarters.

• We saw a further rise in the percentage of agents citing stock constraints as a factor influencing their near term expectations, to 18.5%, from a previous quarter’s 16%.

• From a 4th quarter 2013 estimate of 15 weeks and 1 day, the average time on the market in the 1st quarter 2014 survey declined to 13 weeks and 6 days.

• Percentage of sellers being required to drop their asking price to make a sale, also declined further from 85% previous to 81%.

• Average percentage asking price drop on properties where a price drop is required to make the sale diminished from -9% in the 4th quarter survey to -8% in the 1st quarter of 2014.

• In the 1st quarter survey, 30% of agents expected activity to increase in the next 3 months, down from 34% in the previous quarter, while 60% expected it to stay the same and only 10% expected a decrease in activity.

• Aggregating the various price growth/decline expectations over the next 12 months, the net expected price movement by agents is a modest +3.7%.

Further Strengthening in Residential Activity Indicator

• The 1st Quarter Residential Activity Indicator rose, from the previous quarter’s 6.27, to 6.76.

• Seasonally-adjusted version of the Indicator also rose mildly further from 6.42 to 6.47 over the 2 quarters.

• The rise suggests that strengthening trend in the market through 2012 and 2013 is still intact.

• Activity Rating level remains in the “stable” bracket (a level from 4 to 6), but is now pushing closer to the “Positive” bracket of 7 to 8.

• • The 1st Quarter activity

rating is the highest rating since the 1st quarter of 2005

6.766.48

4

4.5

5

5.5

6

6.5

7

7.5

8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Act

ivity

Lev

els

on a

sca

le o

f 1-1

0

Residential Market Activity Indicator

National Activity Rating (Scale 1 to 10) Seasonally Adjusted

Rate of increase in Demand Activity Indicator slightly slower than previous

• Year-on-year increase in the Residential Activity Rating in the 1st quarter of 2014 was +2.89%, slower than the previous quarter’s +6.5%.

• This is the 7th quarter of increase out of the past 9 quarters.

-30%

-10%

10%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Rate of Change in Activity Levels according to FNB Estate Agent Survey

FNB Estate Agent Survey Rating of Residential Activity - y/y% (Left Axis)Seasonally adjusted quarter-on-quarter % change (Right Axis)

Key survey questions also point towards further improvement in price realism and the balance

between demand and supply in the 1st quarter of 2014.

Stock Constraints intensify

• Along with the rise in residential activity levels over the past 2 years, which reflects a rise in residential demand, has come a rise in “stock constraints” experienced by certain estate agents.

• In the 1st quarter of 2014, we saw a further rise in the percentage of agents citing stock constraints, as a factor influencing their near term expectations, to 18.5%, from the prior quarter’s 16%.

• This comes after an already considerable rise in 2012’s stock constraint percentage over that of 2011.

16.0

18.5

1.0

5.0

9.0

13.0

17.0

Q1-2008 Q1-2009 Q1-2010 Q1-2011 Q1-2012 Q1-2013 Q1-2014% o

f Age

nts

citin

g st

ock

issu

es

Agent Stock Constraints

Percentage of agents citing stock constraints as a factor influencing expectations of near term activity

Average time of properties on the market declines

• One indicator of where the market is in terms of seller pricing realism/ balance between demand and supply is the estimated average time that properties remain on the market prior to sale.

• From a 4th quarter 2013 estimate of 15 weeks and 1 day, the average time on the market in the 1st quarter 2014 survey declined to 13 weeks and 6 days.

• This is the lowest average time on the market since the 1st quarter of 2010.

• This continues to point to a broadly declining trend in the average time on the market since 19 weeks and 1 day high in early-2011.

13.6

0

4

8

12

16

20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Wee

ks a

nd D

ays

on th

e M

arke

t

Average time that a property is on the market

Weeks and days that the average property is on the market before being soldSmoothed

Less sellers dropping their asking price to make the sale

• Another indicator of seller pricing realism in the market, i.e. Percentage of sellers being required to drop their asking price to make a sale, also declined further from 85% previous to 81%.

• While moving in the right direction it must be said that this percentage remains far above the level of around 30% back in early-2004.

81

10

30

50

70

90

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

Proportion of properties sold at less than asking price

Percentage of properties sold at less than asking price Smoothed

The average required asking price drop is diminishing

• We also ask agents to estimate the average percentage asking price drop on those properties where a price drop is required to make the sale.

• This average drop diminished from -9% in the 4th quarter survey to -8% in the 1st quarter of 2014.

• This is now significantly less than the estimated average percentage drop of -13% in late-2011.

-11%-12%-12%

-11%-12%

-11%

-13%-13%

-11%-10%-10%-10%-10%-10%

-9%-9%-8%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%2010 2011 2012 2013 2014

Average Percentage Drop in Asking Prices

Average percentage drop in asking price by sellers required to drop their price to make the sale

Slight improvement in perceptions of affordability

• What we had early in 2014 was only a very slight change to the average agent perception of residential affordability.

• There was a slight decline in the percentage of agents perceiving “income levels to be far behind house prices, from 12% in the preceding quarter to 11% in the 1st quarter 2014 survey.

• Those perceiving “income levels to be a little behind house price levels” also declined slightly from 48% in the preceding quarter to 47%, while the percentage of agents believing that “income levels have kept up with prices” rose from 40% to 41% over the 2 quarters.

• These agent affordability perceptions are vastly improved on a stage back early in 2008, where only 8% of agents believed that income levels had kept up with prices and 72% believed that income were far behind prices.

44

8

41

36

19

47

20

72

57

11

0%10%20%30%40%50%60%70%80%90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

Estate Agent Residential Affordability Perceptions

Income Levels have kept up with house prices Income Levels are a little behind house price levels

Income Levels are Far Behind House Price Levels

11

01020304050607080

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

Affordability Perceptions - Agents who believe income levels haven't kept up with

prices

Percentage of respondents stating that buyer income levels have got far behind price levelsSmoothed

Near term agent expectations regarding activity remain modest

• Agent confidence regarding near term prospects remains noticeably above the low points of 2007/8 and 2011, but still not “overly strong”.

• In the 1st quarter survey, 30% of agents expected activity to increase in the next 3 months, down from 34% in the previous quarter, while 60% expected it to stay the same and only 10% expected a decrease in activity.

-0.2

0.0

0.2

0.4

0.6

0.8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Scal

e 1

to -1

Near Term Estate Agent Expectations

Home Buying Confidence Indicator (Near Term Agent Expectations

Smoothed

Interest rates are the key negative factor influencing agent near term expectations

• When asking agents for the factors influencing their near term expectations, “interest rates” were by far the most common factor.

• Interest rates were generally perceived as a negative factor.

• This was followed by 26% of agents citing stock issues as a factor, with the majority (18%) citing stock shortages (vs too much stock).

• The 3rd key factor on the list was “Economic Stress/General Pessimism”, which at 15% is now higher than the 11% citing “Consumer Positive Sentiment”.

•

411

77

111111

1315

2636

0 10 20 30 40 50 60 70

OtherSeller's Mindset

More Relaxed Lending Stance by …Buyer's Mindset

Strict Credit EnvironmentConsumer Positive Sentiment

Pricing and AffordabilityArea Specific Issues

SeasonalityEconomic Stress / General Pessimism

Stock IssuesInterest rates

%

Factors that influence perceptions of near term future activity levels

Agent expectations on house price inflation also modest

• Agents have perhaps surprisingly low aggregated expectation of average house price growth over the next 12 months.

• The most popular survey response was a 1-2% price increase, which is the view of 20% of respondents, while 18% expect 3-4% increase, 14% expect a 5% rise, 10% anticipate a 6-9% growth rate, 9% a 10% increase, and only 1% foresee a double-digit rise.

• Aggregating the various price growth/decline expectations, the net expected price movement is +3.7%.

1%9%

10%14%

18%20%

14%5%

2%1%

3.70%

0% 5% 10% 15% 20% 25%

Percentage expecting more than 10% increase

Percentage expecting 10% price increase

Percentage expecting 6% – 8% price increase

Percentage expecting 5% price increase

Percentage expecting 3% – 4% price increase

Percentage expecting 1% – 2% price increase

Percentage expecting no change

Percentage expecting between -1% to -4% …

Percentage expecting -5% decrease

Percentage expecting more than – 5% decrease

NET EXPECTED PRICE MOVEMENT

Agent Expectations regarding price movements in the next 12 months

Conclusion

• In summary, therefore, early in 2014, estate agents surveyed continued to point to a very comfortable and still- improving residential property market, a broad trend that has been in place since early-2012.

• They perceive the balance between demand and supply to be gradually improving, as reflected in a declining average time of properties on the market, stock constraints mounting, and gradually improving price realism.

• However, they do not yet point to a market that could be classified as “booming or irrational”,

• They do not appear to anticipate such a market in the near term, expecting house price growth of only 3.7% over the next 12 months, which would be below our expectations for consumer price inflation and thus negative in real terms.

End