Households are R253bn poorer in Q3 thanks to rising interest rates
Johann Van Tonder – Economist and Researcher: Financial Wellness at Momentum
According to the Momentum/Unisa South African Household Wealth Index for the third quarter of 2022, the value of South African household wealth decreased by around R1.528 trillion since the first quarter of the year (Q1 2022) to R15.5 trillion. Households have lost an estimated R253bn in Q3 2022 following the decline of R1.275 trillion in Q2 2022.
Johann van Tonder from Momentum says this decline also means the value of household wealth was R9.3bn or 0.1% lower compared to Q3 2021, meaning the initial gains in the next six months to Q1 2022 were more than erased in the six-months run up to Q3 2022.
“If households want to climb out of this rut and gain more wealth, their income must increase at least by more than the consumer price inflation (CPI) rate,” says Johann.
When expressed in constant prices – to establish whether household wealth increased by more or less than the consumer price inflation (CPI) rate – the index shows it was actually 6.2% lower than a year ago. Put differently, households were essentially an estimated R977.5 billion poorer compared to Q3 2021 – and at similar levels as in Q1 2015.
“The decline in the value of household wealth was caused by a decrease in the value of household assets, specifically financial assets. Several factors contributed to the declining value of household assets over the past six months. The most prominent of these factors are fast and large increases in interest rates all over the world in an attempt to combat high CPI rates, and an expectation of a world economic recession,” says Johann.
Consequently, the index revealed that share prices declined and bond yields increased, negatively affecting the value of households’ pension funds and investments.
According to the index, the value of household pension funds and other interests in long-term insurance declined by an estimated R630.3 billion since Q1 2022, while investments (in risky assets such as some unit trusts) decreased by R1.061 trillion. Combined these two asset categories declined by R1.691 trillion. This decline was marginally offset by an increase of R250.1 billion in the value of other assets such as residential buildings, durable goods, and deposits, leading to the value of total assets decreasing by an estimated R1.441 trillion.
In addition, the index reveals that outstanding household liabilities increased by an estimated R86.9 billion in the six months to Q3 2022, with equal increases in outstanding bond mortgages and other debt.
“The combined effect of increasing outstanding liabilities and declining asset values contributed to the decline in household wealth. However, at this stage, the outlook is for household wealth to have reached a bottom, and for a revival in household assets to drive a recovery in household wealth,” says Johann.
Download the Momentum/Unisa South African Household Wealth Index Q3 of 2022 – click below: