Struggling home buyers can't afford deposit

Carin Smith

Cape Town - Due to increasing financial constraints on consumers, the percentage of home buyers who have no means of paying a deposit, has increased, bond originator ooba said on Monday.

ooba’s statistics also show that 52% of all home buyers applying for home loan finance in August indicated that they had no access to a deposit. It represents a 4% year-on-year increase in demand for 100% bonds.

“This is further evidence of the financial constraints which South African consumers are facing. The slowdown in housing prices coupled with the still positive lending environment could, however, signal a good time to buy property," said ooba CEO Rhys Dyer.

There has been positive growth in South African house prices, but a significantly slower year-on-year growth rate, according to ooba.

Statistics released by ooba show the average purchase price in August 2015 increased by 3.4% from R982 297 in August 2014 to R1 015 766.

"This low single-digit growth is a marked slowdown from the double-digit growth of 11% recorded in the second quarter of 2015," said ooba.

At the same time it is not surprising for Dyer, because consumer confidence is at its lowest level in 15 years.

"This reflects concerns about South Africa’s future, particularly given worse-than-expected second quarter gross domestic product (GDP) figures, poor economic growth forecasts for the remainder of 2015 and rising interest rates," said Dyer.

"Self-employed applicants fell to 9% of ooba’s applications received in August, compared to 11% in the second quarter of 2015. This reflects lower business confidence levels.”

He said the impact of economic concerns is also evident in the first-time buyer’s market, which showed only a 0.9% year-on-year increase in the average purchase price to R761 240. However, activity in the first-time buyer’s market has remained consistent with more than 53% of ooba’s applications in August coming from this segment.

According to John Loos, household and property sector strategist at FNB Home Loans, the most obvious event to which the residential market must surely be responding to at the moment is the mild interest rate hikes that started in January 2014.

"But it probably goes deeper than this. We saw a big drop in second quarter consumer confidence levels, which may have pointed to consumer concerns over events that may yet have to happen, or are currently unfolding but are yet to be reflected in high frequency economic data," said Loos.

"And as job security deteriorates in this fragile economic environment, households and consumers become less confident and more cautious."

He said it is also likely that this deterioration in confidence is likely what estate agents are beginning to experience in terms of “feet through doors”.

Loos said the recent slowing in the year-on-year rate of change in the FNB Estate Agent Survey Activity Indicator may be suggesting that certain impacts, along with interest rate hiking, are still feeding through.

This in turn suggests that economic growth figures may still deteriorate further in the near term.