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South African Property Article - Lowest house price growth in almost 9 years

Private Sale South African Property features an article on South African property titled - Lowest house price growth in almost 9 years.
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Lowest house price growth in almost 9 years

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Absa House Price Index expanded
This month sees the expansion of the Absa House Price Index, compiled and published for the first time back in May 2002. Traditionally the House Price Index focused on the entire middle segment of the residential property market , which comprises small houses (80m²-140m²), medium-sized houses (141m²-220m²) and large houses (221m²-400m²) up to R2,9 million. Price indices with regard to each of the abovementioned categories of middlesegment housing at a national level will be published in future, including the weighted average price index for these three categories combined.

The latest trends in house prices
Nominal price growth in all three categories of housing in the middle segment of the market, as defined by Absa, slowed down further in July this year, whereas prices dropped in real terms (i.e. after adjustment for inflation). This was the result of deteriorating market conditions on the back of rising inflation and interest rates, adversely affecting household finances and the affordability of housing. The average nominal price of middle-segment housing increased by 3,2% yearon-year (y/y) in July this year, down from a revised growth rate of 4,0% in June. The July growth rate was the lowest since September 1999, and brought the average nominal price of a house in this segment of the market to about R967 600. Compared with June this year, house prices increased by only 0,1% in July. In real
terms, prices dropped for the fifth consecutive month in June, by 7,3% y/y (-6,2% y/y in May), based on headline CPI inflation. On a month-on-month basis house prices were down by a real 1,1% in June.

In the category of small houses (80m²-140m²), nominal price growth slowed to a level of 4,9% y/y in July 2008
compared with a growth rate of 6,1% y/y registered in June. This brought the average nominal price of houses in
this category to about R680 800 in July, with prices declining by a marginal 0,1% on the preceding month. Taking
account of the effect of inflation, the average price of small houses dropped by a real 5,4% y/y in June this year after a decline of 4,1% y/y was recorded in May. In June this year average house prices in the small category was 1,3% lower than in May.

Nominal year-on-year price growth in respect of medium-sized houses (141m²-220m²) came in at just 2,1% in July
2008 (3,3% y/y in June), which brought the average price to around R937 300 in July. Compared with June, no
nominal price growth was recorded, while prices have declined by 1,2% in nominal terms between December last
year and July this year. In real terms, the average price of medium-sized housing was 7,9% y/y lower in June (-6,3%
y/y in May). On a month-on-month basis, prices declined by a real 1,4% in July compared with June, after declining
by 1,3% in real terms in comparison with May.

With regard to large houses (221m²-400m²), nominal price growth of 3,6% y/y was recorded in July 2008, down
from 5,3% y/y in June. On a monthly basis, the average price was a nominal 0,3% lower in July than in June. This
brought the average price in this category of housing to a level of about R1 385 800 in July. Taking into account the
effect of inflation, the average price of large houses was 6,1% y/y lower in June (-4,1% y/y in May), while in
comparison with May this year, prices were down by a real 1,5% in June.

The outlook for house prices
On the back of current and expected economic conditions over the next 12 months, nominal price growth across all
three categories of housing in the middle segment of the market is forecast to be markedly lower for the full year and
in 2009 compared with the past number of years, with prices set to decline in real terms this year and next year.
This will be the first annual real decline in house prices since 1999.
Economic conditions are expected to improve in the second half of 2009, to a large extent as a result of declining
inflation and interest rates. On the back of these expectations, the residential property market is set to recover
gradually from late next year with the household sector experiencing less financial pressure. Nominal house price
growth is forecast to rise to levels of above 10% from 2010, with real price growth projected to turn positive again in
2010.

Compiled By: Jacques Du Toit
Authored By: ABSA Home Loans



 


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