Residential market may be set for slowdown

The SARB Leading Indicator for May 2010 returned to month-on-month negative growth for the 1st time since early-2009, to the tune of -0.5%, down from the +1.6% growth of the previous month. On a 3-month moving average basis, the month-on-month growth rate was still positive to the tune of 0.9%, but this too was slower than the previous month's +1.3% growth.

Given residential property's status as a sector that generally leads the business cycle, along with new vehicle sales, there is usually a good correlation between the Leading Indicator and residential property, and even more so with the residential mortgage market.

Arguably the key factors slowing the growth of the Leading Indicator are slowing growth rates in key global leading indicators, as well as a lack of further interest rate reduction since August 2009.

Examining the graph below, one can see that the monthly slowdown in the Indicator has brought about the apparent peaking in year-on-year growth in the Leading Indicator recently. Year-on-year growth still appears impressive, but at 20.9% in May, this was the 2nd month of mild slowing, from a high of 21.5% as at March.

Given the good correlation between it and growth in the value of new residential mortgage loans granted, it is likely that a similar peak and decline in the year-on-year growth rate will commence from mid-year in the new mortgage stats too.

*John Loos is FNB home loans strategist. Ewald Kellrman is a property market analyst at FNB.

Article by: John Loos and Ewald Kellrman - www.realestateweb.co.za