Figures by the South African Reserve Bank (SARB) showed mortgage advances and overall household sector credit have shown only pedestrian growth in July, but it is nevertheless growing and this trend could be viewed as positive.

John Loos, property economist at FNB, said although there has been an acceleration in recent months, the total value of mortgage advances outstanding rose 4% year-on-year (y/y), up from a 3,4% growth rate in June.

Jacques du Toit, property strategist at Absa, said in the households sector outstanding mortgage balances were up 4,5% y/y in July (4% y/y in June) to a level of R747,3bn. Month-on-month growth was R3,9bn, or 0,5%, in July this year.

Total credit extended to the household sector, which includes mortgage advances, increased by 4,6% y/y in July from 4,3% y/y in June. On a month-on-month basis the value of credit extended to the household sector was R6,2bn, or 0,6%, higher in July compared with June.

“The slight rise in mortgage advances growth in recent months has been largely due to the 2009/early-2010 mini-recovery in the residential property sector, which started to drive the residential mortgage book growth slightly higher. Commercial property mortgage value growth, on the other hand, has still been slowing mildly in recent months, which should be expected given the commercial sector’s tendency to lag the residential sector,” Loos said.

“Given signs of the start of a renewed slowdown in the residential market in recent months, which is expected to see new mortgage borrowing growth dropping off in the near term, we do not believe that the mildly rising trend in growth in mortgage advances outstanding is sustainable yet.

“We therefore don’t foresee residential mortgage loans growth posing any significant upside threat to SA’s currently high household debt-to-disposable income ratio in the foreseeable future,” Loos said.

Du Toit said recent trends with regard to a number of domestic economic indicators, such as gross domestic product (GDP), the purchasing managers’ index (PMI), business and consumer confidence, and the Reserve Bank’s leading business cycle indicator, point to a slowing economy. “Both consumer and producer price inflation tapered off further to below market expectations in July this year, while concerns over the prospects for the global economy are growing.”

Loos said the pedestrian growth in household sector credit could be regarded as something positive, in view of SA’s currently high household debt-to-disposable income ratio, which keeps the household sector vulnerable to any external shocks. “We believe a significantly lower debt ratio is required, given a very high risk of a global double-dip recession, and the resultant threat that such unwanted economic events can pose to household cash flows.”

Du Toit said y/y growth in credit extension to the household sector, as well as mortgage advances, is forecast to remain in single digits up to the end of 2010.

These factors all point to the possibility of a further interest rate cut by the SARB at next week’s Monetary Policy Committee (MPC) meeting, albeit a mild one to the tune of 50 basis points and thereby bringing the repo rate down to 6%. – Eugene Brink

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