March House Price Index up 5.1%y/y

HPI growth sideways, following 4.8%y/y growth in February, in line with better mortgages

Slight uptick in the HPI

The indices tracking both the freehold and sectional title market registered modest upticks in y/y growth in March. The index tracking freehold properties increased 6.3%y/y, up from 6.1%y/y in February, while the index monitoring sectional title properties rose 4.6%y/y from 4.1%y/y in February (fig 1).
Q1:14 index growth averaged 4.8%y/y from 5.9%y/y in Q4:13. This is indicative of our view for softer, but still positive HPI appreciation (in the low single digits) in 2014

Mortgage volume resilience a contributor to HPI resilience

Latest data from the National Credit Regulator (NCR) reveals that the volume of new mortgages rose to 43,972 in Q4:13, the highest since Q3:11. While not at pre-recession levels, this tentative resilience in mortgages should provide support and a floor for house prices.

The bulk of mortgages issued (89.6%) were to consumers earning a monthly income in excess of R15,000. Considering that 73% of mortgage loans were in excess of R350,000 in Q4:13, and 40% were greater than R700,00, this seems broadly in line with prudent lending criteria: if we take the example of a R350,000 mortgage loan, over a term of 20 years, at a prime interest rate of 9%, and assume no deposit, a monthly instalment of approximately R3,150 would be required. Applying the guideline that mortgage instalments should not exceed a third of one's monthly income before tax, one would need to earn in excess of approximately R9,540.

Diverging trends in credit quality of mortgages vs. unsecured credit

The overwhelming majority of active mortgage loans are settled on time, with only 8.6% of mortgages overdue by more than 3 months as of Q4:13. This trend has been improving since 2012, while most other classes of consumer credit have recorded sharp increases in overdue payments, with unsecured credit commitments in particular attracting the highest incidence of tardiness. House prices are unlikely to see the dampening effects of increasing supply coming to market via auctions from foreclosures and repossessions.

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