SARB indicator points to glum mortgage market

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The further decline in SA's leading economic indicator suggests likely near-term economic weakness and this is likely to be the same for the mortgage market and the value of new mortgages granted, said FNB on Tuesday.

FNB Home Loans property market strategist John Loos said that one could see a broad correlation in the direction of the year-on-year change in the leading indicator and that of the value of new mortgage loans granted.

From March to June, the value of mortgage grants was already in year-on-year decline.

On a month-on-month basis, the leading indicator fell by 2.1% in August, which represents a downward acceleration from the previous month's revised decline of 1.5%.

While month-on-month growth rates can be volatile, and should thus be read with caution, the past two months' declines were very significant, with the August drop was the biggest since November 2008.

Loos said that on a three-month moving average basis, too, there was a month-on-month decline to the tune of 0.6%.

Year-on-year, the indicator was 1.1% higher than August 2010, but this too represents a slowing in the growth rate from 5% "mini-spike" in the previous month.

The SA Reserve Bank reports that only one of the 11 time series that were available for the compiling of the August datapoint was a positive contributor and that was the commodity price index for SA's main export commodities.

Loos said the most significant negative contributing time series was the composite leading indicator of SA's major trading partner countries, indicating that the country was indeed feeling the pressure from a weakening global economy.

The second two most important negative contributors were a weaker JSE, and weaker business confidence, while deteriorations in market interest rate expectations and a decline in job advertisements also featured.

Examining the OECD's set of "amplitude adjusted" leading indicators for the US as well as for OECD countries, both have been experiencing significant month-on-month decline in recent months.

High commodity prices can be a "direct" near term positive for South African exporters, said Loos.

However, indirectly they have the potential to be strongly negative, contributing to higher domestic consumer price inflation, and also due to the possible effect that the currently high oil prices may be having on especially the US, the world's largest oil consuming economy.


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