Property Talk

The mortgage market

Credit drives the property market. When either its cost or availability changes we tend to witness a direct impact on the volume of transactions on the ground. In their recently published Mortgage Barometer report, FNB look at all transactions concluded by natural persons under R10m over the past ten years and analyzed these by looking at the difference between bonded transfers in which a mortgage bond was registered and total transfers. For the three months ending October 2016 total transfers declined by -4,8% year-on-year. However when we isolate the bonded transfers we see a far larger decline of -8.4%.

What is particularly evident is the declining trend since the peak in September 2013, when total registered property transfers, by their Rand value, grew by 16,8% year-on-year. By the end of October 2016 this growth had slowed to a pedestrian 2,1%. Taken by Rand value, the bonded transactions were in year-on-year decline by -5,5% at the end of October 2016.

The mortgage market reflects the overall economic growth rates and the general trend lines are very similar. This makes sense as you would not expect a country's mortgage market to be growing when its overall economic growth rates have been declining. The silver lining currently appears to be the SARB leading economic growth indicator which is an excellent guide to near term economic growth trends to come and therefore also a very good indicator of new residential mortgage lending growth. The leading indicator has turned positive as of the third quarter of 2016 after being in decline since the end of 2013.

The national figures for new household sector mortgage credit granted declined by -7.14% in the 3rd quarter of 2016 and this was from a peak of 9,3% in the last quarter of 2015. For the main commercial banks in South Africa and for the mortgage origination companies this would have been particularly evident and a very tough environment. They would be watching the leading economic indicator very closely for signs of recovery.

The Bureau for Economic Research provides some interesting economic data and are often quoted for their published business confidence and consumer confidence indexes. Because committing to a mortgage bond is by nature a longer-term decision your confidence in the future and expected income stream will have a bearing on how you respond. On the business confidence side the latest figures were provided for the 4th quarter of 2016 and are still low and below the key 50 threshold. Interestingly the only sector that showed an increase in confidence was the building sector. The consumer confidence index shows a similar negative measurement.

The key Purchasing Managers Index, which is often used as a guide to anticipated growth in the manufacturing sector, rose to 50,9 in January 2017, up from 46,7 in December 2016 and therefore breaching the neutral 50-point mark for the first time since July 2016. This suggests that the manufacturing sector has started the year positively. Our experience at the coal-face of residential property transactions is that the year to date has been particularly busy and is a good sign for things to come.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.