THE REARVIEW MIRROR

THE REARVIEW MIRROR

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2016 has indeed been a volatile year but let’s have a look at some of our national and property data from the banks.

Please prepare yourself, the economists and bankers have not been bundles of joy this year. Even the way they have described the data is often quite negative. Most of what they say virtually carries over to 2017. Bear in mind that comparison is at best subjective as different banks use different bases for calculation; but, we just seek the trends for comment.

HEALTH WARNING: Reading the information below could be bad for your health 

Standard Bank [06 December 2016]:
Macroeconomics: Data Release: November House Price Increases slow to 6.3% year on year 

 

  1. House price increases [HPI] slowed to 6.3% in November from 6.9% in October 2016.
  2. 2016 can be likened to 2012 in terms of house price growth but underperformed that year by 3%. Remember then we were coming out of the very low base of 2008-2010, the Sub-Prime crisis.
  3. Growth in house prices has been moderating for the past five months because of tougher conditions in the economy and reduced confidence.  The labour market softened further in Q3 and unemployment rose to a historical high of 27.1% [published 23 November 2016]. 63% of SA households rely on salary and wages whilst this group accounts for 75% of mortgages. Needless to say, mortgages need a healthy labour market.
  4. SARB data showed that household credit growth slowed to 1.0% yoy in October, from 1.2% yoy in September. Within household credit, mortgage advances (60% of total) slowed for the fourth consecutive month to 3.4% yoy from 3.7% yoy.
  5. Affordability is expected to continue impacting adversely on the demand for and supply of mortgages, and ultimately on property prices.
  6. Purchasing activity will continue to point to subdued demand due to rising political uncertainty, slowing growth of disposable income, a tightening labour market, and tight financial conditions. Commensurately, we expect to remain below inflation for the remainder of 2016 and into 2017.

FNB Residential Mortgage Barometer [6 November 2016]:

 

  1. There has been no real growth to speak of in the residential market.
  2. FNB is not projecting any major change in 2017 despite an increase from 0.2% [2016 projection] to 1% [2017 projection] GDP growth and interest rates that remain steady.
  3. HPI are projected at 5.1% this year with 2017 forecasted at 3%.
  4. Total mortgage lending reduced 6.3% in 2016 and FNB projects a further 2% decline in 2017.
  5. FNB records a declining trend in mortgage arrears from 3.3% in 2016 to 3.2% in 2017.
  6. Good news for banks and their lenders, is that Residential mortgage vulnerability to rates increases and economic shocks has greatly reduced from the very serious days of 2008.
  7. Household sector mortgage loans as a percentage of disposable income is down from 49.2% in early 2008 to 34.7 % in 2nd quarter 2016.
  8. Debt to disposable income ratio has declined from 87.8% to 75.1% in the same period.
  9. Credit growth looks set to remain “pedestrian”.

 

ABSA HOMELOANS HOUSING REVIEW [Q4: 2016]:

 

  1. ABSA puts GDP growth at 0.4% projected in 2016 and rising to 1.1% in 2017.
  2. Inflation is expected to be 6.3% in 2016 and 5.5% in 2017.
  3. Interest rates are up 0.75% in Q1:2016 and have been level since then.
  4. Consumer have endured heightened stress owing to rising unemployment.
  5. HPI has been in a band between 3.5% and 4.5% in 2016 and  2017 is expected to be similar. This results in house price  deflation in real terms between 1.5% and 2.5% in 2016 and 2017.
  6. Inflation has been driven by food, fuel and the Rand.

 

I warned you! So, let’s create some context……..

It’s amazing that about a year ago the Chinese stock market collapsed so fast that the stop-losses failed. Remember those heady days when it seemed everything commercial was breaking loose around us. Now we have survived through 2016 to see the Dow Jones breaking 20000. On top of that, we have survived the Rand at UKP24 and watched the US$ rate rise to R17 and pull back to as low as R13.25. Our stock market has moved sideways between 47000 and close to 53000 whilst the DOW has broken records. Our President has faced 1, no 2, no 3 No-Confidence debates and even a request in the ANC NEC for him to stand down.

And then we have the American election; an uprising, to say the least. You now doubt saw the TIME Magazine with Donald Trump on the cover page. The title: Donald Trump – President-Elect of the Divided States of America. And, after all the orchestrated insults and the locker-room videos, the NYSE likes him. How “otherwise” is that?

Our politics and SOE’s have been a disgrace this year. No-confidence debates shouted and clapped down by a majority; their right but also their connivance. The President being told to “follow his conscience” but it’s okay if he doesn’t. Then, the voice of the people giving nobody a real majority in any major centres but in Cape Town, Nelspruit, Polokwane, Bloemfontein and Durban. The first and the last, major contributors to economic growth. But now the PE, Pretoria and Joburg coalitions have uneasy senses of peace but have to work together to create real poverty alleviation and stop corruptions in its tracks. The SOE’s need no further mention. Probably, the low-point for me is the President referring the State of Capture Report for judicial review instead of a commission of inquiry.

But you know, the property industry has survived and even thrived. Not everywhere has had the Cape Town success story but, so help me, matters could have been worse everywhere. Just some comments in this vein on the above Bank analyses:

 

  • 2016 GDP growth is projected between 0.2% and 0.4%. I’d take the latter any day. And both have avoided recession!
  • Affordability is in order and, when stress tested, is the best since 2008. In fact, FNB says the consumer is in a much better place to withstand shocks.
  • Debt on the mortgage books is due to continue a slow but certain improvement. That’s very good news because a bleeding banker get really grumpy when deciding on credit. Good repayments make him [her?] much happier.
  • The rate of cost increases of new sales is reducing for the mortgage available. I have spoken much of the impact of slowing price rises on affordability and the lender’s attitude to loan-to-value. Good news!
  • GDP growth predictions are bullish. Mr Gordhan says as much as 1.7% and even the banks are saying 1 and 1.1%. I’ll take 1% anytime and 1.7% every time. Can you imagine growing 5X faster than the 0.2% prediction this year? FNB may be right that credit growth may remain “pedestrian” but let me tell you, the positive spin on a growing economy will put everybody in a better mood. Get the Springboks to win against Georgia and we could have a recipe for a mini-boom [Sorry, just a joke!]. But seriously, even if HPI continues to decline in real terms, the news of some green shoots in economic growth and another 200mm of rain, could offset the political shenanigans that, in any case, go with an Elective Conference at end-2017.
  • No more needs to be said for Employment. Give a businessman confidence and you have a willing horse to pull the employment cart.
  • The debt-to-income ratios have declined very positively over the last few years. Good news!
  • Last among many points, a consumer who is more confident, in a growing economy, with interest rates somewhat steady [I’m not truly convinced that we have seen the last of rate rises given the FED’s 3-increase stance in 2017], and house price increases declining in real terms whilst inflation drops within the 6% target band of the SARB, could be the very economy for which we seek in 2017. Would we want more? Do we need more, much more? Of course!. But just some encouragement in the number and the messages would be truly valued.

I would love to hear your views, but as a good quote goes:

“You’ve done it before and you can do it now. See the positive possibilities. Redirect the substantial energy of your frustration and turn it into positive, effective, unstoppable determination. “ Ralph Marston

Yours in Property.

Jack Trevena
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