The value of total South African mortgage advances outstanding saw its year-on-year growth rate continue its long multi-year declining trend, edging steadily closer to negative growth territory. From 4.8 percent year-on-year in September, the growth rate declined to 3.6 percent in October.

While residential mortgage advances are the lion?s share of the total, and thus are the major influence, we have seen commercial mortgage advances growth literally dropping like a stone. Residential advances for September (the split runs a month behind the total) showed 4.8 percent year-on-year growth, down from 5.4 percent previous, as this category of loans starts to reflect the dramatic drop in new lending from around mid-2007.

Commercial property advances recorded 8.5 percent growth for the same month. While still more respectable than the residential mortgage growth rate, the commercial growth rate is declining at a far greater speed, having been double its most recent rate at around 17 percent as recently as June 2009.

The smaller farming sector mortgage segment showed 14.4 percent year-on-year growth for September, but it too has slowed significantly, with its previous month?s growth being 17.2 percent. The farming sector has seen its GDP slip into negative growth during 2009 after a bumper production year in 2008, while food prices have also slipped significantly after the end of the commodity price spike around mid-last-year.

Total household sector loans outstanding show similar trend in value, with a year-on-year growth rate of 2.3 percent for October, down from 3.1 percent previous.

Comment

Nothing in the mortgage and household sector credit data comes as a surprise. Given the lengthy lag between new lending trend changes and those of the outstanding book, one can expect the growth decline to continue through much of 2010, and this should include a period of negative growth both in mortgage loans outstanding as well as total household sector credit.

With the economy emerging from recession, which should translate into some recovery in household disposable income growth from recently weak levels, the steadily diminishing growth in household credit outstanding should lead to more significant progress being made in reducing the currently-high debt-to-disposable income ratio of the household sector.

The most recent figure for the debt-to-disposable income ratio was 76.3 percent (second quarter) which, while not at a 'crisis' level, remained near the historic high reached early in 2008. This high debt ratio has been instrumental in prohibiting the household sector from responding 'aggressively' to significant interest rate cuts this year, and the start of a more noteworthy decline in the ratio in 2010 would ultimately put the household sector on a healthier financial 'platform'.

A lower debt ratio prior to the next interest rate hiking cycle would significantly reduce the negative impact of such rate hiking on the property and household sector.