Lowest growth

Released on Thursday, the statistics show that the average nominal price of middle segment housing increased by 3,2% year on year in July, which is the lowest growth rate since September 1999. In real terms prices dropped for the fifth consecutive month in June, by 7,3% y/y based on headline CPI inflation. This accords with the findings of FNB which also show a "declining inflation trend". FNB Home Loans strategist John Loos expects a 5% year on year deflation at the worst part of the cycle in early 2009 before recovering on the back of recovering economic growth and declining interest rates.

Absa's outlook for house prices is as follows: 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.

Absa House Price Indices and Cyclical downturn seeks bottom and rebound