Oil is much in the news now, for good reason; not least because there is a strong link between the oil market and our economic growth, inflation and interest rates. Events in the Middle East have been dramatic and the general global uncertainty means we don’t know what will happen to the price of Brent Crude, which shot up to $119 a barrel last week.
John Loos, FNB Home Loans strategist, has warned that there could be a knock-on effect that will affect the local property market. How so?
As oil becomes more expensive in developed economies, their growth can be affected, which can have a direct effect on a demand for exports from South Africa. This could, in turn, scupper South African’s plan to create more jobs and grow the economy — and this could affect our ability to afford property, among other things.
We’ve already had an announcement that petrol price will increase by 41c/litre due to the impact on crude supplies. It seems likely that the costs of anything relying on transportation will be affected, including food. This may “crowd out” the portion of disposable income consumers might otherwise have used for servicing home loans, says Loos.
Inflation could also drive the interest rate up — yes, that’s probably inevitable, anyway, given that we’re at the bottom of the cycle — and it’s doubtful whether enough households have got their credit act together to be in a position to take a knock.
“The currently high household debt-to-income ratio of 78,5% is not far from the historic highs of 82%, so the household sector is already vulnerable,” says Loos.
It may be prudent to save, save, save until we have a clearer idea of how the oil crisis will be resolved. And with winter not too far off and electricity hikes pending (and likely to continue until 2015, according to the National Energy Regulator), we’ll all need more disposable income. Lots of it.
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