Housing market points to looming recession - expert

The risk of a recession in South Africa remains high, according to John Loos, household and property sector strategist at FNB Home Loans.

This is not only because the year-on-year gross domestic product (GDP) growth in SA for the third quarter of 2015 was a mere 1%. Loos said on top of that activity in the SA residential market not only points to a near term slowing, but suggests further slowing in the economy and, therefore, keeps the risk of recession high.

He said trend changes in residential activity are highly sensitive to changes in the economic environment, and can even lead some of the most leading business cycle indicators.

FNB's Estate Agent Survey for the fourth quarter shows the residential activity indicator level remains at the upper end of what is regarded as the “stable” bracket and not far from what is regarded as the “positive” bracket.

"However, while activity levels are still fairly solid, it is the indicator’s direction that is of concern," cautioned Loos. The activity rating’s year-on-year growth rate has slid from a +12.18% positive growth “high” in the third quarter of 2014 to a -8.93% year-on-year decline by the fourth quarter of 2015.

He said this decline is not merely of concern from a residential property sector point of view, but also because of what it may be signalling in terms of the near term trend in SA’s economic growth performance, which is already weak.

"Real economic growth was a mere 1% year-on-year in the third quarter, a rate which is insufficient to promote any significant job creation, and more likely to cause net job loss," said Loos.

"So, while sentiment in the residential market - due to a home being seen by many as an investment, not just a consumer item - can often keep this market at solid levels of transaction activity until after vehicle sales have already fallen significantly, the growth fluctuations in this activity nevertheless do appear to have a 'leading indicator' nature."

What the Estate Agent Activity Rating appears to be pointing to is that the negative impact of various factors on SA's economic growth has not yet fully fed into economic growth figures, and that there is further “downside” in the near term.

"While the likes of the mining, manufacturing and agriculture sectors feel commodity price, drought and interest rate impacts quite quickly, this often feeds through to many of the services sectors of the economy with a bit of a lag. The indicator thus appears to suggest that economic growth figures may still deteriorate further in the near term," said Loos.

"While the residential market is still a little way off from being seen as 'weak'', the direction of the residential activity rating does point to estate agents as a group experiencing the mounting pressures on the SA economy’s growth."

Source: Fin24