Slowing year-on-year growth, and month-on-month decline, hints at near term growth slowdown for new mortgage lending, says FNB’s property sector strategist, John Loos.
The South African Reserve Bank published its leading business cycle indicator for August on Tuesday (23 October), which is a good measure of the direction of the economic growth cycle. Its growth direction is not only useful as a leading indicator of near term economic growth direction, but also often as an indicator of where new mortgage lending is going in the near future, Loos said.
The August leading indicator showed a second consecutive month of month-on-month decline, to the tune of -0.5%, and the second consecutive month of year-on-year growth slowing, from +5.1% in June to 1.5% two months later.
This recent slowing comes after a year-on-year growth acceleration from late-2017 up to June 2018, FNB said.
Both global and domestic economic factors were responsible for the month-on-month decline, the lender said.
Commodity prices of key SA exports were listed by the SARB as a negative along with the leading business cycle indicators of the country’s main trading partner countries.
“The indicator suggests that, while some mild growth improvement in the third quarter just past cannot be ruled out, looking forward in the near term we should expect the economy to remain sluggish.
“More importantly from a mortgage lender point of view, however, the direction in year-on-year growth is very often a near term leading indicator of year-on-year new mortgage lending growth,” Loos said.
On a quarterly year-on-year basis, the leading indicator’s growth has slowed from 4.4% in the 2nd quarter of 2018 to 1.47% for the third quarter to date. This is a resumption of the broader slowing growth path after a high of 6.43% as at the first quarter of 2017.
The slowing growth in the leading indicator suggests further near term slowing in growth in the value of new mortgage loans granted – includes residential, commercial and agriculture combined.
This growth in new loans granted has already slowed from 11.7% year-on-year in the 1st quarter of 2018 to 6.1% in the second quarter.
The slowing growth in the second quarter was driven by a commercial mortgage lending growth slowdown, while the residential component still attempted to defy ‘economic gravity’ in the second quarter.