The FNB Holiday Towns House Price Index continues to point to an improving holiday town market, albeit coming off a low base. After some years of lagging the more primary residence-driven city markets, recent quarters’ data increasingly point to a noticeable strengthening in house price growth performance in the Holiday Town residential market.
Since the end of the property boom around 2008, up until earlier this year, we repeatedly pointed to relative weakness in the strongly holiday property-driven residential markets.
Being non-essential in nature, holiday property buying tends to be more cyclical than primary residential demand, implying that certain smaller town residential markets that are strongly driven by holiday property demand should generally be more cyclical than major cities which are overwhelmingly driven by primary residential demand.
However, after a very long period of “abnormally” low interest rates, gradually the confidence levels of a growing portion of the household sector in its ability to afford luxuries appears to be increasing. Some of this confidence may be misplaced, influenced by the low interest rate period and a human tendency to forget that interest rates don’t necessarily stay low for ever. But “pro-cyclical” thinking is a reality for many people, rightly or wrongly.
We have witnessed some improvement in the perceptions of estate agents participating in the FNB Estate Agent Survey over the past year or so. The survey has recorded an estimated 3% of total home buying which is estimated to be holiday home buying over the past 4 quarters.
This does not point to any strong upward trend, but is a percentage above the lowpoint of 1% reached at a stage of 2010, and these mildly improved levels of demand may have been sufficient to begin to reduce supply “overhangs” in many of the Holiday Town markets, thus supporting some improvement in average price growth off a low base.
And so we have seen a recent acceleration in the year-on-year price growth rate of the FNB Holiday Towns Index, with the 3rd quarter recording a 10.5% year-on-year increase. This is up on the previous quarter’s revised 7.6%, and is now inflating more rapidly than the Major Metro House Price Index growth rate of 7% as at the 3rd quarter.
It remains important to emphasise, however, that this acceleration doesn’t reflect an overly-strong market, because the price growth comes of a relatively low base after the Holiday Town markets have significantly underperformed the metros in terms of price inflation in prior years.
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