Bad state of household finances shows in housing sector

Consumers may be starting to cut back on non-essential or luxury expenditure items, including value-adding upgrades to their homes, because of the deteriorating economic environment and distressed state of household finances.

Roy Cokayne

CONSUMERS may be starting to cut back on non-essential or luxury expenditure items, including value-adding upgrades to their homes, because of the deteriorating economic environment and distressed state of household finances.

First National Bank (FNB) reported a decline in the estimated percentage of homeowners investing in their properties with a view to adding value to 22.5 percent on a two-quarter moving average basis in the fourth quarter from 26 percent in the third quarter.

Estate agent survey

John Loos, a household and property sector analyst at FNB, said the fourth quarter was the first time in six quarters that FNB’s estate agent survey did not record a further improvement in agent perceptions of home maintenance and upgrades.

Loos said this broad-improving trend had been in place since 2013.

He said the home maintenance and upgrades market remained vastly improved from 2008/09 levels, but it was plausible to see a weakening in levels of home investment in a rising interest rate environment and deteriorating economic growth putting disposable incomes under pressure.

But Loos stressed that it was too early to conclude the decline was the start of a trend.

Loos said data from Statistics SA on additions and alterations also appeared to point to a possible slowing.

For the three months to November, the square metres of additions and alteration plans passed declined by minus 7.64 percent year on year.

However, the square metres of additions and alterations completed still grew by 7.95 percent in the same period, although it had slowed from an earlier high of 33.5 percent year on year from the three months to June.

He said FNB believed the household sector had begun to reach its financial limits, resulting in a more conservative spending approach, but had not yet experienced a noticeable rise in full-blown financial stress. He said this was based on the decline in the top “upgrade-related” category, but not yet in the bottom “basic maintenance” or “letting homes get run down” categories.

“Rising financial stress would see those bottom categories’ percentage increase, as they did around the time of the 2008/09 recession.”

FNB’s estate agent survey has five categories of home maintenance and upgrades, with value-adding home upgrades the top category.

Loos said the percentage of homeowners fully maintaining their property and making some improvements, the next level down, previously appeared to have peaked but improved to 42.5 percent in the fourth quarter from 37.5 percent in the previous quarter.

The percentage of homeowners not improving but still fully maintaining their homes was unchanged at 26.5 percent in the fourth quarter.

Basic maintenance

There was a slight decline in the percentage of homeowners attending to only basic maintenance to 7.5 percent in the fourth quarter from 9 percent in the previous quarter.

Homeowners who allowed their homes to “get run down” was at a fairly insignificant 1 percent in the fourth quarter, Loos said.

Meanwhile, Absa Home Loans reported on Friday that nominal year-on-year growth in the average value of middle-segment homes remained in single digits last month, and remained low in real terms after adjustment for the effect of consumer price inflation.