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Homeowners, tenants not overly indebted

consumer-debt-trapFinancial stress in the residential market is not as bad as has been reported. This is according to John Loos, FNB household sector strategist, who said that year-to-date stress was only mildly higher than 2015.

“Late in 2015, our FNB Estate Agent Survey began to show a mild increase in the percentage of home sellers believed to selling in order to downscale due to financial pressure,” said Loos. “From a low of 11% of total sellers in Q3 2015, this percentage rose to 14% in the final quarter, and again measured 14% in Q2 2016.

“However, that upward move appeared short-lived, as the Q3 2016 survey saw the estimate receding to 12%. To provide perspective, the 2016-to-date estimate for sellers selling in order to downscale homes due to financial pressure is 13%, only marginally up from a 12.5% average for 2015.”

These estimates are very low compared to the 34% high reached in Q2 2009 during the financial crisis.

The rental market, too, is still managing to keep its head above water, with TPN data showing the percentage of tenants that are “in good standing” with their landlords has averaged 83.6% year-to-date.

“This is weaker than the 84.5% average for 2015, but this percentage still reflects a relatively solid tenant financial situation compared to the 71% early in 2009, back around the time of the financial crisis,” said Loos, noting that the household sector debt-to-disposable income ratio continued to decline into 2016, having fallen all the way from an all-time high of 87.8% in Q1 2008 to 75.1% by Q2 2016. “The mortgage debt-to-disposable income ratio has declined even more significantly over the same period from a 49.2% high early in 2008 to 34.7% by Q2 2016, with mortgage lenders having lent far more cautiously since the end of the pre-2008 boom.

House price growth dips below 0%

“This debunks perhaps the myth that household indebtedness is getting worse. For some, maybe, but this is not so for the household sector as a whole, and doesn’t appear to have been the case in the residential mortgage market. Overall indebtedness remains high in our view, but has improved (declined) noticeably since 2008.”

FNB’s Estate Agent Survey has for some time pointed to declining residential market activity, with new mortgage loan demand having begun to decline.

“Q2 2016 NCR data shows the value of new household sector mortgage loans granted declined by -1.17% year-on-year – the first quarter of decline since the final quarter of 2012,” said Loos. “This was entirely expected, and further decline should be anticipated.”


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