While the number of first-time buyers entering the property market continues to show improvement, many young, single consumers are still not able to meet the lending criteria required for home loan finance approval, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
“The result of this is that although younger generation buyers are making their presence felt in the housing market, it is buyers aged between 31 and 45 known as Generation X, who are predominately driving market recovery in the housing sector. Deeds office data indicates that in most of the regions throughout the country, the highest percentage of buyers during 2012, were aged between 36 and 49 years old. These buyers are established in their careers and most are married. Dual income households comprise a greater portion of the housing market,” says Goslett.
He notes that conditions such as pricing correction and remarkably low interest rates have changed the face of the real estate sector and opened up the market to potential buyers that were previously unable to purchase homes during the boom period. Averages over the long-term indicate that as many as three out of 10 buyers will be purchasing a home for the first time, which is critical to the housing market recovery. During 2012, the estimated first-time buying as a percentage of the total buying increased from 20% in the second quarter to 26% in the third quarter according to the First National Bank (FNB) Property Barometer. This is a remarkable increase from the 12% of first time buyers active in the market during 2008.
“However,” says Goslett, “many factors are having an impact on the younger generation, such as the ever growing population resulting in a much more competitive job market. Many also have large student-loan debt, and as a result low affordability levels, which has led to very few qualifying for home loans.”
According to John Loos, FNB Home Loan Strategist, another factor is that the first-time buyer demand among the younger generation tends to be more cyclical than the total market. He points out that this is arguably because many young buyers have more flexibility than those in established households and are delaying purchasing their own homes and choosing to remain in their parent’s homes or rent for longer during tougher property and economic times.
Studies suggest that the demographic of buyers that fall within the Generation X age category are more likely to believe that market conditions are ideal for property investment and have the means to take advantage of the conditions, while the younger generation will hold out for further improvement. Buyers within Generation X have also had more time to establish their financial stability and save the necessary deposits required by most financial institutions. With a large percentage of this demographic being married, many also have the advantage of applying for finance with dual incomes, which resulted in a higher success ratio of approval.
Recent home buyer surveys in the US indicate that the median age of first-time buyers is 31 years old, with 65% of all buyers married couples, 16% single women, 9% single men and 8% unmarried couples. The same survey taken two years prior revealed that 58% of buyers were married, 20% were single women, 12% single men and 7% unmarried couples. Goslett says that current South African buying trends closely follow these statistics, with the number of established, older, married buyers increasing while the number of younger, single buyers has decreased over the past two years.
Goslett concludes by saying that even though many of the younger generation may not be able to enter the property market at the moment due to affordability issues, as they gain momentum in their careers and establish themselves financially, they will meet the criteria to qualify for the necessary finance to purchase property.