PROPERTY MARKETS. BEHIND THE DEMAND FOR HOUSING - An update on the Household sector s financial health

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1 PROPERTY MARKETS BEHIND THE DEMAND FOR HOUSING - An update on the Household sector s financial health 11 September 2 JOHN LOOS: FNB HOME LOANS PROPERTY STRATEGIST John.loos@fnb.co.za The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Firstrand Group Limited and / or the authors of the material. Directors: GT Ferreira (Chairman), SE Nxasana, VW Bartlett, JP Burger, LL Dippenaar, DM Falck, PM Goss, PK Harris (CEO), WR Jardine, EG Matenge-Sebesho, RK Store, BJ van der Ross, RA Williams. Company Secretary: BW Unser. First National Bank a division of FirstRand Bank Limited. An Authorised Financial Services provider. Reg No. 1929/122/6 SUMMARY Given that the financial well-being of the country s household sector is key to the strength of the residential property and mortgage markets, it is important to keep a close eye on this part of the economy. In recent times, we have started to see the early encouraging signs that the household sector s financial position may start to turn for the better. Most notable was the SARB not hiking interest rates in August, and as oil prices decline and global food price inflation tapers a bit we are increasingly hopeful that the country has finally reached the end of interest rate hiking. With the expectation that interest rates will only start to decline around April next year, it is what is believed to be the start of a declining trend in the household debt-to-disposable income ratio that is expected to lead to the all-important household debt-service ratio (cost of servicing household sector debt as a percentage of disposable income) commencing its decline at the end of this year, prior to being helped lower by interest ate cuts. But life hinges around more than just debt, and the encouraging global inflation news in the form of declines in commodity prices bodes well for local inflation. We may well be very near to the peak in consumer price inflation numbers, and with the country s wage bill inflating steadily, a decline in inflation should translate into a recovery in disposable income growth in real terms, possibly late in the current year, after a declining growth trend spanning back to the beginning of 27. This anticipated recovery in real disposable income growth is expected to precede an economic growth recovery, but is based on the assumption that, although economic growth will go slower for a while, SA will not fall into a recession. The initial recovery in real disposable income growth is expected to be driven in part by higher average wage inflation, inflation, and unfortunately this may mean a period of net job loss and greater income inequality as employers try to contain their wage bill growth. Nevertheless, the anticipated improvement in the household sector s financial situation, in turn, is expected to reverse the fortunes of the country s ailing residential mortgage market, and after sharp year-on-year declines since mid-27, the value of new mortgage loans is expected to return to positive year-onyear growth towards the second half of 29.

2 THE QUICK PICTURE: MORE GREEN ON THE SCREEN AS THE HOUSEHOLD FINANCIAL PICTURE SHOWS EARLY SIGNS OF TURNING THE CORNER FOR THE BETTER The table below sums up the most recent movements in key economic variables that help to drive, or are a reflection of, household financial stress or well-being. In the previous household sector report in July, there was general carnage, with only one of the numbers (largely first quarter stats at that stage) showing an improvement and that was a mild decline in the average house price/average income ratio, which reflected the start of improving affordability in housing for the average cash buyer at least. As at September, the most recent household and related data has shown clear signs that more significant improvement may be at hand. Real wage growth turned positive after a year of decline, and very importantly the household debt-to-disposable income ratio started to decline in the second quarter as households cut back on borrowing. Although the debt-service ratio still rose in the 2 nd quarter due to further rate hikes, encouraging is the SARB decision not to hike interest rates in August, and if the sideways movement in rates continues for the rest of the year, this, coupled with a declining debt-to-disposable income ratio, could see the first decline in the debt-service ratio (cost of servicing the household debt burden as a percentage of household sector disposable income) in the final quarter of this year. Household income and key drivers thereof Situation as at July Situation as at September Real Disposable Income Growth Declining positive growth Declining positive growth Employment Growth Declining positive growth Declining positive growth Real Wages Negative real growth Return to positive growth SARB Leading Economic Indicator Growth Negative growth Negative growth Real Economic Growth Declining positive growth Higher in Q2 Debt servicing costs and main drivers thereof Interest Rates on debt Rising Sideways Consumer Price Inflation Rising Rising Household debt-to-disposable income ratio Rising Declining Household debt-service ratio Rising Rising Drivers of household wealth Household Net Saving-to-GDP Ratio Dis-saving Slightly less dis-saving Real house prices Declining Declining Real Interest rate earned on fixed deposits Declining real rate Declining real rate JSE All Share Index monthly average June Decline 3-month/3-month decline Indicators of household confidence Consumer Confidence Index (FNBBER) Decline Decline of total residential property sellers selling to emigrate Rising Rising Key Cost of Living Drivers outside of the consumer price index Housing affordability(house price/income ratio) Improving Improving Housing affordability(1 bond payment/income ratio) Deteriorating Improving

3 The 2 measures of housing affordability both started to decline in the 1 st quarter of this year (estimates are somewhat behind because average wage data runs a quarter behind most economic data), i.e. the average house price/average income ratio as well as the instalment repayment value on a 1 loan on the average priced house/average income ratio. The second ratio may have deteriorated once more in the second quarter due to a resumption of interest rate hiking, but should come down steadily as from the current quarter should our expectation of no further interest rate hikes be proved correct. 2 Other numbers which turned green were second quarter real economic growth as well as the rate of dis-saving which was slightly less than the previous quarter. The improvement in dis-saving on the other hand was too small to be significant yet. With regard to economic SARB Leading Indicator SARB leading indicator - y/y change growth, don t read too much into the second quarter GDP number as the feeling is that its rebound was merely due to a low base created in the first quarter by Eskom disruptions, and that the economy will resume a quarterly declining trend after the good second quarter number. The SARB Leading Indicator is a good pointer of the way forward in the short term, and it is moving steadily down. Our forecast for real GDP (Gross domestic product) growth is 3 for 2, followed by 2. in 29, with recovery only taking place nearer to 21 as the expected world economic recovery begins and as local interest rates start to decline. However, the weak economic growth that we may have to endure for a while is not expected to prevent household real disposable income growth (a very important number from a residential property point of view) from starting to tick upwards from the end of this year. This revival will be gradual, and will not be driven by job creation in the slow economic environment, but rather by the expectation that CPIX inflation will peak around September, and thereafter will gradually make less of a dent on households nominal disposable income. In addition, the forecast of no further interest rate hikes implies no further household net interest payment (interest paid on debt minus interest received on deposits), and this too is a plus from a real disposable income growth point of view. The country s wage bill should also contribute because, although jobs may well be being lost during the remainder of the year, wage inflation for those who are employed appears to be accelerating in response to higher inflation. All of these factors are expected to se to it that quarter-on-quarter real disposable income growth turns upward in the final quarter of 2, after a 7 quarter decline since early-27. The expected up-turn in real disposable income growth and the downturn in the debt-service ratio late in 2 will be the main drivers of a return to positive growth in demand for residential property, and thus in new mortgage advances, which have experienced a sharp decline since mid-26. HOUSEHOLD SECTOR FORECAST SUMMARY Prime rate is forecast to remain at 1. until April 29 before declining gradually by 2 basis points to 13 by early-21. Real GDP growth is forecast at 3 for 2, 2. in 29 and 3. in 21, the gradual recovery towards 21 coming on the back of lower interest rates and a gradually recovering global economy. After an impressive 6.9 real growth in real household disposable income in 27 (although steadily declining from quarter to quarter), 2 is forecast to yield a slower growth rate of 2.6 (quarter-on-quarter turning point expected late in 2), followed by a mildly better 2. in 29 (although this doesn t include the possibility of a boost from significant personal tax reduction in an election year) and. in 21. The good 21 number will not only have the benefit of positive job growth and lower inflation, but also lower net interest payments, and in an improved global and local economic one should expect to see stronger growth in the income from property (investments) component of household sector disposable income. The debt-service ratio is forecast to peak at 11.9 in the current quarter (very similar to the near-12 ratios of previous big cycles in the s and 9s ignoring the prime rate spike), end 2 slightly lower at 11., end 29 at 9.73 and 21 at.3. For the current year, the total value of new mortgage loans and re-advances is projected to fall by about 3, implying that from last year s total value of R36.6bn, new mortgage loans are projected at R26bn for the current year, followed by another more mild rate of decline of - to R236bn for 29. Bear in mind, though, that from quarter to quarter the 29 situation is expected to improve steadily in response to improving real disposable income growth and lower debt-servicing costs, and by 21 the mortgage market is projected to be growing at a lot faster 3. (R33bn), regaining some lost ground although not yet getting back to the 27 rand value. It must be emphasised that, although our most probable scenario is one of no further rate hiking and slower but reasonable economic growth, global economic risks (credit crunch and geo-political in nature) remain abundant, and one cannot entirely rule out recessionary conditions which are capable of taking local growth lower and delaying the household sector recovery.

4 THE DETAILED PICTURE REAL DISPOSABLE INCOME STILL BEING SQUEEZED BY RISING INFLATION Real economic growth rebounded in the second quarter of the year. To a certain extent this was an artificial rebound, driven by a return to normality in the country s electricity supply, and a resultant recovery in mining sector output. From a quarter-on-quarter annualised growth rate of 2.1 in the 1 st quarter of the year, the second quarter s growth rate rose to an impressive.9. This, however, did not manage to reverse the declining growth trend in real household disposable income. Nominal disposable income growth actually even accelerated during the second quarter, which reflects rising average wage inflation in lagged response to higher consumer price inflation, but this too did not have the desired impact. Offsetting rising average wage inflation was a probable switch from net job creation up until the first quarter to net job loss in the formal sector in the second quarter of this year. This meant that the acceleration in nominal disposable income growth to 1 year-on-year in the second quarter was insufficient to offset the effect of surging consumer inflation (using the household consumption deflator) which averaged 1. in the same period. The further narrowing of the gap between nominal disposable income and inflation was responsible for sustaining the decline in real disposable income despite the GDP growth recovery. Quarter-on-quarter annualised growth in real disposable income slowed from 2.6 in the first quarter of 2 to 2 in the second quarter, the 6 th consecutive quarter of slowdown. Besides the inflation issue, it is also possible that deteriorating corporate performances in line with the broad economic slowdown may be starting to impact negatively on the investment income component of disposable income, while net interest payments by the household sector were sure to have resumed their rise, as interest rates rose again in the second quarter and household deposit growth was slower than household credit growth. 9 Disposable Income vs GDP 16 Gap between Nominal Disposable Income and Consumer Inflation Real household disposable income (q/q ann.) GDP (q/q ann.) Mar- Mar-1 Mar-2 Mar-3 Mar- Mar- Mar-6 Mar-7 Mar- Percentage point gap between nominal disposable income growth and consumer inflation Nominal household disposable income - y/y change Consumer Inflation (using HCE Deflator) - y/y change Labour data runs a quarter behind most economic data, but in the first quarter we already began to see an acceleration in year-on-year average wage inflation from 7.2 in the final quarter of 27 to 12.3 in the first quarter of this year. This is the usual lagged response of the wage negotiators to rising inflation, and aided a return to positive real wage inflation after quarters of real wage deflation. The SARB estimated real wage growth at 3.1 in the first quarter. The SARB also reports that Andrew Levy, a private sector labour consultancy, estimates the average wage settlement increase at.3 for the first half of the year, compared with 6. in the same period of 27. While not yet sufficient to drive nominal disposable income growth to high enough rates to stop the narrowing of the disposable incomeconsumer inflation gap, the reaction of wages to higher inflation is the first part of the path to financial relief for households from the current pressure situation. Nominal Wage Inflation vs Consumer Inflation 12 Real Wage Inflation Wage inflation - y/y change Consumer Price Inflation - y/y change Real average wage inflation - adjusted using non-agriculture GDP deflator - y/y change

5 WHILE WAGE INFLATION HAS STARTED TO PLAY CATCH-UP, UNTIL THE ECONOMY RECOVERS SUSTAINABLY, RETRENCHMENTS WILL CONTAIN THE GROWTH IN THE TOTAL REAL WAGE BILL The reality of a slowing economic growth trend, ignoring what is believed to be a temporary second quarter blip, and rising interest rates and inflation, are serving to put company profitability under pressure and in such times cost containment becomes the name of the game in the commercial sector. One of the big economy-wide costs is the wage bill, and it stands to reason that in light of upward pressure on wages in recent wage negotiation rounds, the drive to improve labour productivity will intensify. In times of slower economic growth, and thus demand for outputs, average productivity improvements are often achieved through labour shedding. On a year-on-year basis for the first quarter, StatsSA was still estimating positive year-on-year non-agricultural formal sector employment growth to the tune of 2.1. This was slower than preceding quarters but still positive. Positive growth at that stage should not have been surprising, as wage cost inflation in the preceding quarters had been weak and economic growth in 27 was strong. Employment - y/y percentage change Q2-27 Q3-27 Q-27 Q1-2 Total Non-Agricultural Mining Manufacturing Electricity, Gas and Water Construction Wholesale/retail trade, catering and accommodation Transport, storage and communication Financial, insurance, real estate and business services Community, social and personal services Unit Labour Cost and Productivity Growth Unit labour cost inflation - y/y change Labour productivity - y/y change But with wage inflation rising steadily in the first quarter, and average productivity growth slowing, unit labour costs surged from a year-on-year inflation rate of. (and an average of.1 for 27 as a whole) in the final quarter of 27 to 1.2 in the first quarter of 2. Such a unit labour cost increase sets the scene for likely net job losses, and this process may have already set in during the second quarter. Job shedding should at least partly offset the positive impact of higher growth in the average wage, and also implies that while real purchasing power continues to grow positively (albeit at a slower rate), the distribution of the purchasing power becomes more unequal.

6 SURGING CONSUMER INFLATION STILL A PROBLEM, BUT THE END OF THE TUNNEL MAY BE APPROACHING CPIX inflation continued its rise in July from a previous month s 11.6 year-on-year to 13. Further increase is expected to continue until September. The make-up of consumer price inflation during the recent surge has been particularly problematic due to the essential nature of the two key drivers namely food and fuel. The CPIX sub-index for food inflated by a massive year-on-year rate of 1. in July and was still on a rising trend at that stage, while the transport sub-index rose by an even more extreme 21.. The composition of price inflation at present means that lower income groups are still feeling the inflationary pressure more so than their higher income counterparts, because food and transport make up a higher weighting in the expenditure basket of the lower income groups. The very low expenditure group recorded year-on-year consumer price inflation of 1.3 in July, the low expenditure group 1.1, the middle expenditure group 1.3, followed by the high expenditure group on 13.6, and the very high expenditure group recorded the lowest In reality the gap between low and high may be more extreme, because in real life the weightings changes as prices change whereas in the statistics the weightings of the various items are kept constant for some years. CPI per Expenditure Group Jul-6 7 Jul-7 Jul- Very High expenditure group CPI - Very Low expenditure group CPI - Low Expenditure Group CPI - Middle expenditure group CPI - High expenditure group Consumer Price Inflation Key Drivers CPI - Food - y/y CPI - Housing - y/y CPI - Transport - y/y The composition of inflation in recent times may have had much to do with ending the superior performance of the lower-priced end of the residential property market. Indications of this are to be found in some of the house price indices that exist. Lightstone Risk Management has compiled area value band indices. The indices are made up according to the average house price value of the country s various suburbs. If the area had an average price of R1.m and above as at the end of 26, it was classified as a luxury area, areas averaging between R7k and R1.m at the end of 26 were classified as high value areas, R3k-R7k as mid-value areas, and R3k and below as affordable areas. As at April of 2, the 2 lower value area bands, i.e. the mid-value and affordable indices, were still inflating at year-on-year rates above those of the 2 more expensive area value band indices. However, one can notice a steady narrowing of the gap between the lower and higher priced area indices since a few years ago. This, to me, signifies a more rapid deterioration at the lower end of the market. A further indication of the end of the lower priced segment s superior performance is found in the FNB House Price indices, where the median index inflation rate recently overtook the average price inflation rate. Median price indices tend to be more sensitive to shifts in activity levels up and down the price ladder, and the fact that the median is now inflating at a slightly higher rate than the average price (/ y/y vs 2.3) suggests that the relative shift in activity towards the lower end of the market in recent years may be over for now. 3 Lightstone Area Value Bands Annual Inflation Luxury High Value Mid Value Affordable Narrowing gap between midvalue and higher value bands 3 2 FNB Average vs Median House Price Index Jul-1 Jul-2 Jul-3 Jul- Jul- Jul-6 Jul-7 Jul- - FNB House Price Index - year-on-year percentage change Median House Price Index - year-on-year change

7 Encouraging signs are emerging, though, which suggest that the CPIX inflation peak may be near. Global oil prices have been coming off steadily from levels above USD1/barrel in July to touch below USD1/barrel earlier this week. It was to be expected that at some stage oil prices couldn t defy gravity, given widespread signs of an ailing global economy which exerts downward pressure on global oil demand. This has resulted in the first 2 petrol price reductions locally, with more expected. We re not out of the woods yet, as September year-onyear petrol price inflation was still just above (although down from 9. in July which is encouraging). Along with a host of other commodities prices, global food prices have softened too, which has brought the rand-denominated Economist Global Food Price Index s year-on-year inflation rate down from 6 at the end of June to at the end of August. 1 Global Food Price Inflation Gauteng Pump Price Inflation and Brent Crude Oil Economist Food Price Inflation Index - y/y change Rand-denominated Index - y/y change Petrol price (y/y) Brent Crude - Rand-denominated - y/y change (Right axis) 1 - IMPROVING HOUSING AFFORDABILITY ALSO STARTING TO BRING SOME RELIEF AS HOUSE PRICE INFLATION SLOWS AND THEN DEFLATION SETS IN Index 2= Affordability of housing Average-priced house repayment value/average income index (2=1) Average house price/average income ratio (Index 2=1) Data Source: Lightstone; SARB Both measures of housing affordability are also starting to suggest that some relief for households may be on its way through improved ability to buy residential property. The average house price/average income ratio has been declining for 2 quarters to the first quarter of 2 (Average income data runs behind, but it is most likely that this decline continued in quarter 2). The pause in interest rate hiking in the first quarter also led to the second measure of affordability, the instalment repayment value on a 1 loan on an average priced house/average income ratio, declining slightly in the first quarter. This ratio probably resumed its rise temporarily in the second quarter due to further rate hiking, but provided rates remain moving sideways from here onward this measure of affordability is also most likely set to improve (decline).

8 Household Debt to Disposable Income vs Debt Service Ratio Peak? Household debt-service ratio (Left Axis) Household Disposable Income vs Total Household Sector Credit Growth Household debt - y/y change Nominal household disposable income - y/y change Household debt-to-disposable income ratio (Right Axis) - year-on-year t h Household Debt Servicing Cost vs Insolvencies THE DEBT SERVICE RATIO LOOKS SET TO START DECLINING PRIOR TO INTEREST RATE CUTS, AIDED BY A DECLINING HOUSEHOLD DEBT-TO-DISPOSABLE INCOME RATIO One of the important trend changes towards an improved household financial situation was started in the second quarter. The ongoing decline in growth in outstanding household debt has brought the year-on-year growth rate down to a level similar to the growth rate in household disposable income, which has led to the beginning of what is expected to be a steady decline in the household debt-todisposable income ratio. After the household debt-to-disposable income ratio reached its highest level ever of 7.2 in the first quarter, a decline to 76.7 was recorded in the second quarter of 2. This is believed to be the start of a broad trend downward in this ratio, precipitated by steadily declining growth in the value of outstanding household debt. On a year-on-year basis, growth in outstanding household sector debt has declined from 27. in the first quarter of 26 to 1. by the second quarter of 2, slightly higher than the 1.1 year-on-year growth rate in household nominal disposable income. But the quarter-on-quarter growth in debt is lower than the equivalent growth rate for disposable income, and hence the drop in the debt-to-disposable income ratio. The start of the decline in the household debt-to-disposable income ratio is the first step to reversing the rising trend in the allimportant debt-service ratio (cost of servicing the household debt burden interest + capital expressed as a percentage of household sector disposable income). Given our belief that interest rates have reached their peak, and that they will now move sideways at current levels until the second quarter of 29 before declining, it is anticipated that the debtservice ratio will begin to decline in the final quarter of 2, driven down initially by the declining debt-to-disposable income ratio and from the second quarter of next year helped on by declining interest rates too. The decline in the debt-service ratio from late this year is arguably the most important driver of improving household credit quality, and the graph to the left indicates that with a lag of a few quarters, the rate of change in insolvencies (admittedly only one indicator of household financial stress levels) normally starts to follow the trend in the debt-service ratio Household debt-service ratio (Left Axis) Insolvencies (Right Axis) - year-on-year percentage change

9 ONE CAN T DENY THAT SAVINGS REMAINS AN ONGOING PROBLEM 6 SA Household Savings Rate Net household savings as of Disposable income The household savings, or rather dis-saving, situation showed only marginal improvement in that dis-saving was slightly less at -. of disposable income as opposed to the previous quarter s -.7, a change which is hardly significant. On a gross basis, households are indeed saving something. But the SARB figures measure savings on a net basis, making an adjustment for depreciation of fixed capital assets owned by households. Therefore, current income exceeds expenditure, but not by enough to cover estimated depreciation. The savings problem is a longer term issue that is probably not going to be resolved by interest rate policy and short term economic cycles. SUMMARY: MILESTONES, RECENT AND ANTICIPATED, IN THE TURNING HOUSEHOLD FINANCIAL CYCLE. - LATE 2 EXPECTED TO BE A TURNING POINT FOR 2 KEY VARIABLES 1. 1 ST Quarter 2 A return to positive real wage inflation after quarters of negative real wage growth through 27. This is due to wage settlements responding with a lag to the higher consumer price inflation of recent times, and average wage inflation has started to catch up with nd Quarter 2 Formal sector net job shedding is believed to have begun due to rising wage inflation in a slowing economic growth environment (implying declining productivity growth and rising unit labour cost inflation), forcing the commercial sector to retrench in order to contain input cost increases. This process partly offsets the boost to household purchasing power achieved by higher wage increases nd Quarter 2 - The household debt-to-disposable income ratio begins to decline. Although one swallow doesn t make a summer, the downward trend in household debt-to-disposable income is believed to have started in earnest, with steadily declining growth in household outstanding debt having been on the decline for a few years, as households cut back on new borrowing in response to rising debt servicing costs.. 3 rd quarter 2 The peak in CPIX inflation is expected in the month of September. Encouraging signs have been seen in recent weeks in the form of declines in oil prices, petrol price cuts, and lower global food price inflation. The start of the gradual decline in CPIX inflation is expected from the th quarter.. 3 rd quarter 2 Real quarter-on-quarter disposable income growth expected to reach rock bottom, driven down by the combination of peaking consumer price inflation, and higher net interest payments (household interest payments on debt minus interest received on deposits), given the 2 further interest rate hikes in the second quarter still feeding through into the numbers), slowing income on investments with returns under some pressure in the slower economic environment, and the belief that job losses could still be in progress. 6. th quarter 2 Real disposable income growth is expected to start to rise on a quarter-on-quarter annualised basis, and on a year-on-year basis a quarter later. Although an improvement in quarterly economic growth is not expected at this stage, the real disposable income growth recovery is expected to precede the economic growth recovery due to the start of a declining consumer inflation trend, as well as no further increase in net interest payments (given sideways interest rate moves), and of course nominal wage inflation still playing its catch-up to, and at this stage possibly set to exceed consumer inflation temporarily. 7. th quarter 2 A further decline in the household debt-to-disposable income ratio, coupled with the expectation of no further interest rate hiking, is expected to translate into the start of a declining trend in the household debt-service ratio from this quarter onward.. 29/1 A return to positive quarter-on-quarter growth in new mortgage loans early in 29, reflecting the start of improving residential property demand. The expectation is that this will be driven by steadily improving real disposable income growth from quarter to quarter, as well as a declining debt-service ratio. Initially, improving real disposable income growth will probably not be driven by improving real economic growth, as early-29 is still expected to be slow in that regard. Rather, the recovery of real income growth is expected to be driven by declining consumer price inflation (while wage inflation is still strong due to the catchup process to inflation) and then from the second quarter by declining net interest payments. Towards 21, improving economic

10 growth and job creation is expected to come into the picture. The debt service ratio is expected to be pushed down by declining growth in outstanding household debt and then interest rate reductions from April Household Debt to Disposable Income vs Debt Service Ratio 1 Real Disposable Income Growth Forecast Forecast Household debt-service ratio (Left Axis) Household debt-to-disposable income ratio (Right Axis) - year-on-year t h Real Household disposable income - Estimated y/y change Early in 29, a return to positive quarter-on-quarter growth in the value of new mortgage loans granted is expected. The return to positive year-on-year growth, however, is only anticipated in the second half of next year, with 21 as a whole being a strong growth year. KEY FORECAST NUMBERS Prime rate is forecast to remain at 1. until April 29 before declining gradually by 2 basis points to 13 by early-21. Real GDP growth is forecast at 3 for 2, 2. in 29 and 3. in 21, the gradual recovery towards 21 coming on the back of lower interest rates and a gradually recovering global economy. After an impressive 6.9 real growth in real household disposable income in 27 (although steadily declining from quarter to quarter), 2 is forecast to yield a slower growth rate of 2.6, followed by a mildly better 2. in 29 (although this doesn t include the possibility of a boost from significant personal tax reduction in an election year) and. in 21. The good 21 number will not only have the benefit of positive job growth and lower inflation, but also lower net interest payments, and in an improved global and local economic one should expect to see stronger growth in the income from property (investments) component. The debt-service ratio is forecast to peak at 11.9 in the current quarter (very similar to the near-12 ratios of previous big cycles in the s and 9s ignoring the prime rate spike), end 2 slightly lower at 11., end 29 at 9.73 and 21 at Growth in value of New Residential Mortgages and Re-Advances Forecast For the current year, the total value of new mortgage loans and readvances is projected to fall by about 3, implying that from last year s total value of R36.6bn, new mortgage loans are projected at R26bn for the current year, followed by another more mild rate of decline of - to R236bn for 29. Bear in mind, though, that from quarter to quarter the 29 situation is expected to improve steadily, and by 21 the mortgage market is projected to be growing at a lot faster 3. (R33bn), regaining some lost ground although not yet getting back to the 27 rand value. - Value of new residential mortgages granted - y/y Value of new residential mortgages granted - q/q