Absa - Outlook

Lower international oil prices and a stronger rand exchange rate during the fourth quarter of 2006 caused domestic fuel prices to decline during the quarter, with food price inflation also moving to lower levels.

These developments, according to Absa’s Residential Property Perspective First Quarter 2007, recently released in Johannesburg, kept CPIX inflation well under control towards the end of last year.

With CPIX inflation forecast to peak at around 5,5% in the second quarter of 2007, the Reserve Bank is expected to hike interest rates by another 50 basis points in February.
Thereafter, rates are projected to remain stable until yearend before starting to decline in early 2008.

Against this background, the current declining trend in both nominal and real house price growth is forecast to continue in 2007. Lower nominal growth in house prices of 9,1% is projected for this year compared with 2006. This lower price growth will mainly be driven by the combined effect of the affordability of housing, especially for first time and low- to middle-income buyers, and interest rates.

Interest rates are expected to increase somewhat further before peaking in the first quarter and moving sideways in the rest of the year.


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