The second quarter of the South African Consumer Financial Vulnerability Index (CFVI), released last week, shows that consumers are feeling more vulnerable and credit stressed than the first quarter of this year. MBD Credit Solutions– an independent provider of credit management solutions in Southern Africa- in collaboration with Unisa’s Bureau of Market Research (BMR) released the 2012 2nd quarter CFVI at a presentation on Wednesday 15 August 2012. This index has been defined as a reflection of South African consumers’ experiences on the state of their cash flow position, spanning across four broad financial categories: income, expenditure, savings, and debt servicing. Each of these categories are scored and an overall CFVI is calculated. The higher the CFVI value the more financially secure consumers are ; the lower the score, the more stressed.
Figure 1: CFVI measurement (after de Clercq, 2012)
In the 1st quarter of 2012, the CFVI was 58.9 and declined to 48.6 in the 2nd quarter of 2012. Consumers therefore moved from a position of feeling mildly exposed in terms of the pressure experienced on cash flow, to feeling very exposed. This value is based on a decline in the value of the CFVI subcomponents: incomes, savings, expenditure and debt servicing; the largest decline seen in the income component followed by savings and debt servicing and the least decline, in expenditure.
The index reflects a cash flow position similar to that of 2009, when there were job losses and Gross Domestic Product (GDP) stagnated. As the correlation between the CFVI and GDP is 0.9, the results imply that the economy expanded at a slow pace in the 2nd quarter of 2012. This reveals a state of financial strain among South African consumers resulting from adverse international and domestic economic conditions.
The 2nd quarter of 2012, however, recorded significant activity in the real estate sector, particularly in the affordable housing market. Ooba, reported significant growth in home loan applications and approvals. Subsequent to the new government FLISP subsidy, it has been reported that banks are easing up on mortgage loan criteria. This means that, in the 2nd quarter of 2012, mortgages were becoming more accessible to borrowers, despite the economic conditions and increased financial vulnerability. Is it possible, then, that we have a double-dip recession which is soon to have adverse effects on the current state of the mortgage markets?