Economic data releases and events were the shining light for property in March. The SARB’s renewing of interest rate cutting was the most noticeable economic event, taking mortgage rates to the lowest level since a few decades ago.
This rate cut came on the back of a drop in the February CPI figure, released last week too, to 5.7%. However, arguably a more important indicator was the SARB January Leading Business Cycle Indicator, whose growth rate actually accelerated, suggesting further economic growth improvement in the near term. And then, of course, we saw the release of the SARB Quarterly Bulletin, which showed a return to positive quarterly growth in real household disposable income, all very positive for residential property demand.
The SARB Quarterly Bulletin also showed us that, despite improving economic indicators, the household sector’s finances are still far from healthy. Nominal disposable income growth was too weak to exceed mediocre household credit growth, meaning an increase in the already-high household debt-to-disposable income ratio, as well as the household debt-service ratio (which is a good predictor of default rates on home loans).
Patience is required, as reducing the debt ratio is normally a multi-year process, but for as long as the ratio remains so high the household sector remains at high risk to any unwanted shocks.
Political events have turned nasty, and SA’s racial past has come back to haunt it in the form of renewed focus on the “hate speech” issue. For residential property, the risk is that emigration selling of property starts to rise again, shortly after having subsided since the 2008 emigration selling surge.