Heading for a downturn?

[Marq]

From what I can gather in speaking to various agents and readings - the unit volume has not dropped that much. There is an obvious drop at the high end of the market - but the bottom to middle range is going strong as demand has just lowered its sights a bit and people have become a bit more realistic in terms of their salaries and income levels. I think the sales themselves are becoming tougher which is where the usual disinterested estate agent starts to baulk and sees life in fast lane as not for them.

The level of agents in the country a few years back, if memory serves me, was round about 65,000. This big drop off we are looking at now is a common phenomenon as soon as things get a bit tight. The bored housewives and instant money idea people drop off pretty quickly if they can't cut a deal within the first few months and its also the once a year thing as the registrations come in and they can get a handle on how many agents are out there. I think if one has access to the boards numbers, we will find this to be the trend every year. The ranks swell during the year as people look for something to do and then fade at the end of the year as they do not renew.

So while there is probably a correlation between drop in agents to depressed house market as intimated by these property 'experts', I doubt it is anywhere on the same level as indicated in the reports.

I think I saw more agents boards out this past weekend than I have for a while so assume there is more stock than usual which of course could also prove that there is an excess of agents boards as a result of all those leaving and thus more room to manoeuvre in a volatile market which means a buoyant situation ripe for the sensitive buyer with ready cash on hand.

Oh sorry......The last sentence is as a result of listening to too many economists out there telling us about matters of finance and housing.

[Vincent]

To put a light touch to such an emotive subject.

My economist has suggested the following trends for the next twelve months.

• Petrol will rise to R12 -R15/ litre,
• food cost will rise by another 20% on the things he buys and
• interest rates will reach 16-18%.

Very scary stuff if I have to believe him. I have this conversation with him every couple of days when I need to fill up my car with petrol.
I wonder if he knows something that we all don't know.

And this was my 200th post

[Dave A]

And this was my 200th post

Way to go, Vincent
And so many quality posts too.

[Dave A]

First National Bank's (FNB) residential property barometer has dropped to the lowest level recorded for any quarter since its inception in 2003, the South African Broadcasting Corporation reported on Monday.

The bank said the barometer, which measures commercial activity in South Africa's major urban centres, dropped to 4,96 -- on a scale of one to 10 -- in the first quarter of 2008, from 5,09 in the previous quarter.

Up to 83% of people selling their houses had to accept a much lower offer than their asking price.

The bank said the average time a house remained on the market had risen to 12 weeks and four days from 11 weeks and two days in the previous quarter.

The barometer picked up a substantial rise in the number of people selling their properties in order to emigrate, compared with the previous quarter.

"This is especially so on the higher-income end of the market. While it is too early to say how far the latest emigration surge will go, this does pose a greater risk to the higher-priced end of the housing market," the bank noted.
full story from M&G here

[duncan drennan]

"This is especially so on the higher-income end of the market. While it is too early to say how far the latest emigration surge will go, this does pose a greater risk to the higher-priced end of the housing market," the bank noted.
full story from M&G here

I wonder how many of those are being snapped up by foreign investors....the irony.

[Dave A]

The M&G headline is Sales of new vehicles decline. Yes. The new car sales figures are out, and perhaps the Business Report headline is more appropriate.

Vehicle sales hit a brick wall

New vehicle sales extended their fall in May, dropping by a massive 23.4 percent to 39 533 units compared with the same month last year, the National Association of Automobile Manufacturers of SA (Naamsa) said on Tuesday.

Naamsa said while the market remained generally under pressure due to high interest rates, other factors contributed to the massive decline of 12 095 units during the month.

"These included the public holidays at the beginning of the month, new vehicle price increases over a broad range of product and the social turmoil experienced in areas of the country," Naamsa said.

New car sales fell by 28.1 percent to 22 647 units as higher interest rates continued to force consumers to tighten their purse strings. Naamsa said new car sales are likely to have fallen by 28.7 percent if sales that are not reported in detail were included.

Sales of new light commercial vehicles, bakkies and minibuses fell 17.2 percent to 13 992 when compared with the previous year. Taking account of the light commercial vehicles sales reported by the AMH Group, the year-on-year decline amounted to 19 percent.

Sales of vehicles in the medium and heavy truck segments of the industry also came under pressure during May at 912 units and 1 982 units, respectively, recording a massive decline of 33.7 percent, in the case of medium commercials, and a modest gain of seven percent in the case of heavy trucks and buses.
full story from Business Report here

[Dave A]

Chatting to an estate agent from the Durban North area, she reckons the property market reversal is quite possibly worse than '97/'98.

Anyhow, CPIX is in - and up.

The increase in consumer price index excluding mortgage rate changes (CPIX) was up 10.9 percent year-on-year (y/y) in May from 10.4 percent y/y in April, Statistics South Africa said on Wednesday.

CPIX was up 1.1 percent month-on-month (m/m) after it increased 1.6 percent m/m in April. This is the 14th month running that CPIX has been above the six percent upper target limit.
from Business Report here

This part from the same story had me giggling...

Stats SA said the annual increase of 10.9 percent in the CPIX was mainly due to relatively large annual contributions in the price indices for food, transport, housing excluding interest rates, household operations, medical care and health expenses, fuel and power, education, personal care, cigarettes, cigars and tobacco, and clothing and footwear.

Maybe a list of what didn't go up would have been shorter.

We've also got some employment stats in:

Interest rate increases and Eskom's failure to supply power for new construction projects are starting to slow job growth.

Statistics SA reported yesterday that 174 000 jobs were created in the non-agricultural formal sector in the 12 months to March - an increase of only 2.1 percent to 8.4 million.

Job growth in the first quarter was only 0.1 percent, after an increase of 0.8 percent in the previous quarter.

Quarterly employment statistics (QES) are derived from a survey of more than 22 000 formal businesses.
full story from Business Report here

Any bets on negative employment growth numbers for the second quarter?

[Dave A]

Manufacturing output is down

South Africa's manufacturing output growth slowed sharply in May, official data showed on Thursday, suggesting the sector remains under stress from higher interest rates.

Statistics South Africa said manufacturing expansion fell to an unadjusted 0,7% in volume terms year-on-year from an upwardly revised 10,2% in April.

"It is lower than expected and I think in general it confirms that the production sector remains under some stress," said Efficient Group economist Fanie Joubert.
full story from M&G here

I had a quick look at the May summary on Stats SA. There were two things that stood out for me apart from the headlined volume drop - the value had increased by 18.6% and manufactured output includes refinery production, ie. fuel!

Given the hefty fuel price increases, I wonder how other manufacturing sectors faired if you stripped fuel out?

[Dave A]

Once again, new vehicle sales figures are not looking pretty:

New vehicle sales dropped 19.7 percent in July compared with the same month last year, the National Association of Automobile Manufacturers of SA (Naamsa) said on Monday.

"For the balance of 2008, in the domestic market, new vehicle sales will remain under severe pressure as a result of the cumulative impact of interest rate rises, inflationary pressures, high levels of personal debt and the slow down in economic activity," the organisation said.

New passenger car sales fell 19.1 percent.

The downturn in light commercial sales accelerated further during July, Naamsa said. Sales of new light commercial vehicles, bakkies and minibuses reflected a decline of 23.5 percent compared to the corresponding month last year.

Sales of vehicles in the medium and heavy truck segments of the industry reflected a mixed picture during July.

A decline of 24.1 percent was recorded for medium commercials, while heavy trucks showed a gain of 6.1 percent compared to the corresponding month last year.
full story from Business Report here

It's pretty much an international trend, though.

The meltdown in the global automotive industry claimed more victims on Friday as General Motors (GM) lost another $15.5 billion (R112 billion), BMW warned on profit and Nissan earnings missed expectations by a wide margin.
full story from Business Report here

Local manufacturers must be getting some relief out of improved new vehicle exports, though. A total of 28 269 new vehicles were exported, an 85.4 percent increase compared to the 15 247 vehicles exported during July last year.

[Dave A]

The August vehicle sales figures are in.

New vehicle sales in August dropped by more than 30 percent compared to the same month last year, the National Association of Automobile Manufacturers of South Africa (Naamsa) said on Tuesday.

The downward trend of recent months continued with the sales of new cars and light and medium commercial vehicles decreasing 30.3 percent from 57 970 in August last year to 40 395 last month, Naamsa said in a statement.

"However, the industry's August 2008 sales performance should be seen in relation to the fact that August last year had represented a relatively high base in that it had the highest monthly number of new vehicles sold during 2007," it said.

Which is quite curious because that is after the NCA kicked in! Anyway, back to the story...

New car sales (25 304 units) declined by 32.9 percent, even though August was normally a strong month for new car sales, driven by demand from car rental companies.

"Despite this, the daily sales rate during August 2008 had continued to fluctuate around the lowest levels experienced over the past four years."
full story from Business Report here

Exports of vehicles are still looking strong, though - which is good news. The other interesting snippet is that these numbers deal with units. A strong shift to cheaper vehicles is also reported. I wonder how those numbers would look if we looked at value rather than units.

[Dave A]

Time for the interest rate to come down?

Here are four stories that to my mind make a case for our local interest rates to start heading down a touch.

The race to zero - we have one of the highest interest rates in the world.
The biggest losers - The JSE has lost over 42% of its value over the past month or so.
Borrow, buy, burn, bail out - we are going to be facing some stern competition in the face of government funding to business elsewhere.
Consumers curb spending - USA and Europe is a shrinking market right now.

And of course our local market conditions have tightened considerably.

Trevor Manuel said that economic policy needs to "lean against the wind." So maybe its time to bring down the interest rates, stimulate our local economy, let the Rand blow out a little to help local exporters and try to reverse the trade deficit, and put the National Credit Act as a credit moderator to the test.

[Dave A]

And to add to my case for interest rates coming down sooner rather than later - this extract from an analysis on where the UK finds itself now:

Monetary policy was kept far too tight for far too long: something only one member of the Bank's Monetary Policy Committee (MPC), which sets UK rates, appeared to realise as the economy headed unerringly towards the rocks over the past six months.

While the Federal Reserve in the US was cutting interest rates aggressively to cushion the impact of recession, the MPC here was twittering away about inflation. The bank normally moves rates in quarter-point moves: it is now under pressure from the markets to reduce borrowing costs by a full point next week in order to make up for lost time. That's how far behind the curve it now is. If Mervyn King had been managing his beloved Aston Villa soccer club rather than a central bank, he would have been fired by now.
from M&G story here

[Dave A]

Even Tito Mboweni is starting to sound a little less hawkish on the back of recent inflation data.

South Africa's inflation outlook has improved and it is hoped that an easing since August is the start of a consistent downward trend, central bank Governor Tito Mboweni said on Thursday. He also said in aspeech at a diplomats dinner that while the local banking system had largely escaped the global credit crisis, the real economy was not immune.

South Africa's consumers and producer inflation eased more than expected in October, data showed this week, which together with slowing growth has raised speculation of a cut in interest rates.

The targeted CPIX inflation slowed to 12,4% year-on-year from 13% and factory gate inflation fell to 14,5% from 16% previously.

Most analysts expect the central bank to start unwinding the five percentage points in rate hikes made since June 2006 early next year, but markets are pricing in a cut in December. The repo rate stands at 12%.

Mboweni said the inflation outlook had improved to some extent, with previous upside risks -- global food and oil prices -- falling, and domestic demand pressures subsiding in response to previous rate increases.

"The most recent measure, published yesterday, showed that CPIX inflation declined to 12,4% in October compared to the recent peak of 13,6% seen in August. We are hopeful that this is the start of a consistent downward trend."
full story from M&G here

But next comes a dampner.

South Africa's private sector credit growth slowed only slightly in October, official data showed on Friday, dampening expectations of an imminent interest rate cut.

Central bank data showed private sector credit growth dipped to 16.17 percent in October from a year earlier, its lowest level since early 2005, following a downwardly revised 16.28 percent in September.

But the slowdown was not as sharp as expected, with economists forecasting growth to slow to 15.4 percent as high interest rates deter households and companies from taking up more debt.

During the same month, growth in the broadly defined M3 measure of money supply accelerated to 15.59 percent, compared to 15.23 percent previously. A Reuters poll predicted growth of 14.9 percent.

Analysts said while credit growth had slowed, the fall was not fast enough to add to arguments for a rate cut in December.
full story from Business Report here

Hmm. Got to ask a stupid question here.

If credit growth is up around the 15% mark, but economic growth is down at 0.2% - what is this credit growth financing?

[Rebel]

If Credit demand is up and economy is down - that indicates amongs other things that the BBBEE deals is being bailed out by credit from the institutions. Another thing is that institutions have to up the credit limits of small businessess to keep them afloat to survive the current crunch. Look at small time car dealers - they need more credit to keep stock on their floor.

[Dave A]

Well, credit growth certainly hasn't been for financing new vehicles...

South African new vehicle sales declined by 28,3% in November compared to the same month last year, in another sign that high interest rates are taking their toll on consumers.

The National Association of Automobile Manufacturers (Naamsa) said on Tuesday new sales fell to 34 176 units in November, with passenger car sales alone tumbling 33,6% over the previous year, the worst monthly new car performance in the last five years.

Including sales from Associated Motor Holdings -- which reports separately -- total sales fell to 36 638 vehicles in November from 52 366 last year, and were down 11,2% from October.
full story from M&G here