Homes for sale: asking prices becoming more unrealistic - FNB

The majority of home sellers (96%) have to drop their asking price in order to sell the property. That's according to a second quarter FNB Estate Agent Survey.

This is up from an estimated 91% reflected in the first quarter survey and compared to an estimated 78% who ended up having to lower their asking prices in 2014.

While the majority of sellers normally tend to start high and allow themselves to be bargained down as a strategy, there is nevertheless a cyclical element to this behaviour, explains John Loos, household and property sector strategist at FNB.

He says the survey evidence suggests that asking prices on average have become less realistic in recent years.

Loos says the trend also shows an increase in the magnitude of estimated asking price drop required to make a sale.

In the second quarter survey, the estimated magnitude of asking price drop needed to make a sale became slightly larger - from -8.2% in the first quarter of 2018 to -9.2% in the second quarter.

For Loos this indicates an apparent quarterly deterioration in the balance between demand and supply of homes.

Loos says that, despite very low average house price growth, FNB has not seen any noticeable increase in the percentage of properties resold at prices lower than the previous purchase price.

Resales

About 9.6% of total properties resold in July were estimated to be at lower prices than the previous purchase price. This is higher than the 8.7% of May and 8.9% of June.

He says it is, therefore, possible that the incidence of repeat sales deflation is starting to rise. However, given the customary data volatility, two months of increases are insufficient to draw conclusions on.

Of the homes deflating, 2.1% were resold at 0% to 5% below its previous purchase price, while 6.9% were resold at greater than 5% below its previous purchase price.

The ongoing broad decline in resale price deflation is an overhang from pre-2008 boom days, in his view, when many people were buying homes at the height of the house price bubble. They were, therefore going to battle to achieve a capital gain in the post-bubble era.

Homes bought in the past 10 years since the bubble ended were generally bought at far more realistic prices, and are therefore arguably less likely to deflate, according to Loos.

"While we are seeing the resales price deflation fade, we are also seeing the high rates of capital gain fade a little," says Loos.