Real estate – pure economics or sentiment?

An economist will tell you that house prices are essentially determined by supply and demand, which in turn are driven by various economic fundamentals.

Demand factors might include among other things the interest rate, household income, the GDP or population growth, while housing supply is primarily influenced by construction costs, interest rates, and in our local context, downsizing or even emigration.

While economics certainly underpin any market, it is the more intangible and elusive idea of ‘sentiment’ that really interests me.

Despite the relevance of psychological factors on the real estate market, very little, if any research has been done on the subject due to the difficulty in measuring sentiment.

This means that we are often left scratching our heads as we witness and operate in a local market that is anything but uneventful and boring.

I do not go a week without at least a few people asking me, “How is the market?” To me, answering this question is a big responsibility and I often find myself having to qualify my answers with specific examples or anecdotes.

The reason is simply that my answer might depend on what kind of week or month it has been, how my team is feeling, what kind of deals have been done, how many new listings have we taken on, what my colleagues in other parts of the country have shared with me, and maybe even whether I had a good breakfast or not.

And that’s the point, sentiment is exactly that. A snapshot of how someone or a group of people feel at any given time.

Today, people feel anxious about the Coronavirus, tomorrow it’s jubilation at a cricket series whitewash against the Aussies, next week it’s your frozen meat spoiling due to load shedding and by the end of the year there is a sense of excitement for the holidays and a renewed positivity for the year ahead.

So what role does sentiment play in our local North Coast market?

In my opinion it plays a fundamental one and it’s for a pretty simple reason. People actually want to live here and in general choose to be positive.

For many, the area is aspirational, liberating, a fresh start, a permanent holiday.

This means that investors tend to view things with a ‘glass half full’ mind-set which reflects in their behaviours.

Yes, there are certain sectors that have been put under pressure, especially the high-end luxury market, and you might hear some negative mutterings at your weekend braai, but for the most part, the market has been remarkably stable over the past number of years.

Despite elections, power issues, global economic factors and everything in between, according to the Deeds Office, our North Coast market traded a very consistent R2,595 billion and R2,566 billion in residential sales in 2018 and 2019 respectively, and 2020 is likely to follow suit.

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