Absa forecasts nominal house price growth of “around 5%”

Nominal year-on-year house price growth declined to only 3,8% in June this year from a revised 4,7% in May, according to the latest Absa House Price Index released today.

The June growth rate, according to Jacques du Toit, senior property analyst at Absa, was the lowest since September 1999, when it was 3,3%, which brought the average price of a middle-segment house to about R965 500 by mid-2008. During the first six months of 2008, average nominal house price growth of 6,4% year-on-year was recorded, compared with 15,6% year-on-year in the first half of 2007.

In real terms, house prices in the middle segment of the market dropped by 6,3% year-on-year in May 2008, compared with a decline of 4,8% year-on-year recorded in April, based on headline CPI inflation. On a year-on-year basis, house prices declined for the fourth consecutive month in real terms in May, which also saw the biggest real price drop since April 1993, when it was -7,4% year-on-year.

The May 2008 real price decline is in sharp contrast with a positive real growth rate of 33,9% year-on-year recorded in September 2004. However, the biggest ever real price drop occurred in June 1985, when it was -22% year-on-year. .

Du Toit says during January-June this year nominal house prices remained virtually static, implying that no growth was recorded on a month-on-month basis over this period. “In real terms, house prices dropped by a further 1,1% in May from April, which was the sixth consecutive month of a real price decline on a monthly basis.

The real price of a middle segment house has dropped by about R36 300, or 5,6%, since the end of last year.

CPIX inflation, currently at 10,9% year-on-year, Du Toit says, is under strong upward pressure on the back of rising food, fuel and also electricity prices, resulting in demands for wage increases of above 10% over a wide front. Brent crude oil is trading at about $145/barrel, implying that domestic fuel prices are set to rise further over the short term. Against the background of these developments, CPIX inflation is forecast to average above 12% in the third quarter of 2008.

These inflationary pressures are expected by Du Toit to cause the Reserve Bank’s Monetary Policy Committee to hike interest rates once more in August, by 50 basis points. Such a step is expected to result in commercial banks raising their lending rates to the public, i.e. prime and variable mortgage interest rates, to a level of 16%.

Activity levels in the residential property market, as well as both nominal and real house price growth are forecast to taper off further from current levels towards end-2008 and into 2009. Nominal house price growth of around 5% is forecast for the full year, declining to about 4% next year.

In real terms, house prices are in line for a drop of some 6% on average in 2008, with a further real price decline of 3,3% projected for next year.
Loading comments
More news articles
Guidelines to securing a home loan
29 May 2018
Many young South Africans are working hard to achieve their dream of purchasing their first home. However, the process can be challenging due to the daunting application process, which can take up to 2 years and is often enough to discourage prospective buyers.
read more
Things you should consider before upgrading to a new home
23 Apr 2018
The thing about the property ladder is that at some point in our lives we all have reason to want to climb a rung or two higher. Sometimes, it’s because we’ve outgrown our previous dream home, or because we want to be in a better neighbourhood that’s closer to work or to schools. Sometimes it’s because our circumstances have changed, and we’re taking care of elderly parents or relatives. Sometimes, it’s just because we want a property that reflects the financial status our hard work has won.
read more
Property Index
Get the latest property trend reports from the experts