15 Sep.
Absa: Latest trends in mortgage debt indicative of economic developments and state of household finances.
South Africa’s real economic growth was significantly lower in the 2nd quarter of 2011 on the back of trends in global economic conditions and domestic demand, as well as labour action in some sectors of the economy during the quarter, which adversely affected production and service delivery. Real gross domestic product (GDP) increased at a quarter-on-quarter seasonally adjusted annualised rate of only 1,3% in the 2nd quarter of the year, after rising by 4,5% in the 1st quarter. Consumer price inflation continued its upward trend, reaching a level of 5,3% year-on-year (y/y) in July this year, whereas interest rates were kept stable since last cut in November 2010.
In the household sector, growth in real disposable income tapered off to an annualised rate of 4,1% in the 2nd quarter of the year from 5,4% in the 1st quarter, while growth in real final consumption expenditure slowed down to an annualised rate 3,8% in the 2nd quarter (5,2% in the preceding quarter). The lower growth in household income and consumption was partly the result of increasing inflationary pressures, affecting consumers’ purchasing power. The ratio of household debt to disposable income was down from 76,8% in the 1st quarter of the year to 75,9% in the 2nd quarter. Reflecting these developments on the household sector front, including continued tight labour market conditions, consumer confidence was on average lower in the first three quarters of 2011 compared with a year ago.
Evident of the abovementioned trends, the residential property market continued to experience relatively tough conditions in 2011 compared with a few years ago. Nominal house price growth remained low in the first eight months of the year, with prices declining in real terms on the back of rising inflation. The mortgage interest rate is currently at its lowest level since the end of 1973, which resulted in monthly mortgage repayments being 33,5% lower than in December 2008 when the mortgage rate was 15,5%. Although the low interest rate is positively impacting the affordability of housing and mortgage finance, growth in outstanding household mortgage balances slowed down to less than 3% y/y up to July this year (see graph below). This may be related to a still relatively high household debt-to-income ratio of almost 76%; many consumers having damaged credit records (8,63 million, or 46,4%, of a total of 18,6 million credit-active consumers in the 1st quarter of 2011), which impact their ability to take up credit; and a lower level of consumer confidence compared with twelve months ago. …
Read more at Absa Property Research
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