Absa reports mortgage advances growth down to mid-2004 level

Year-on-year growth in mortgage advances by monetary institutions slowed down further to 16,6% in September 2008 from 17,6% in August, based on data released by the South African Reserve Bank, according to Absa.

This the bank says in its comments on the data, was the lowest year-on-year growth recorded in mortgage advances since May 2004 and was well below the peak of almost 31% of October 2006.

On a month-on-month basis mortgage advances growth was at a level of 1,0% in September, the same as in August.

Growth in mortgage advances to the household sector also tapered off further to 20,0% year-on-year in September (21,2% year-on-year in August) after peaking at 29,0% year-on-year in March this year.

The amount of outstanding mortgage balances in the household sector was R681,2 billion in September, having a share of 72,3% in total mortgage debt, which comprises commercial and residential mortgages.

The significant slowdown in the residential property market, especially since late 2007, has largely contributed to mortgage advances growth declining to its lowest level in more than four years.

These developments, notes Absa, came on the back of surging inflation and rising interest rates, as well as the implementation of the National Credit Act in mid-2007, which caused households in general to experience severe financial pressure and not being able to afford much higher levels of debt anymore.

On the housing front, nominal house price growth hit a 15-year low of only 1,5% year-on-year in September this year, whereas prices dropped by 10,3% year-on-year in real terms in September, which was the biggest real year-on-year decline in house prices since late 1992.

Relatively low nominal house price growth of below 4% is expected by Absa for 2008 and 2009, with prices forecast to decline in real terms this year and next year.

The CPIX inflation rate came in at 13,0% year-on-year in September (13,6% year-on-year in August), with the peak in inflation probably reached in August.

“However, the recent sharp depreciation in the rand exchange rate does not bode well for the near-term inflation outlook, which is a concern to the Reserve Bank in view of CPIX inflation being well outside the target range of 3%-6% for quite some time.”

Absa forecasts inflation to gradually decline during the course of the next 12 months on the back of factors such as a slowing economy, base effects and some major methodological changes to the calculation of consumer price inflation to be imposed early next year.

“Against this background, the Reserve Bank is expected to leave interest rates unchanged up to the second quarter of 2009 when a rate cut is forecast.

“In view of these developments and expectations, mortgage advances growth is forecast to continue to slow down towards the end of the year as a result of the
interest rate cycle, the impact of the National Credit Act, the tightening of credit criteria by banks, and the severe financial pressures consumers are experiencing in general.”
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