Downward trend in South African property price growth continues

Growth in House Prices Slowing Further

In February 2008, year-on-year growth in house prices in the middle segment of the market (see explanatory notes) slowed further to a nominal 8,7% from a revised 9,9% in January. House price growth has not been so low since the end of 1999, when it was 9,3%. These trends in house price growth are according to the latest Absa House Price Index, which indicates that the average price of a middle-segment house was about
R969 800 in February.

In real terms, year-on-year price growth was down to only 0,6% in January from 2% in December. This was the lowest real growth since the 1,4% recorded in September 1999. Against the background of nominal house price growth continuing to decline, whereas inflation is on a rising trend, real year-on-year price growth may turn negative in the near future. The last time that house prices declined in real terms on an annual basis, was
back in mid-1999.

On a month-on-month basis, nominal house price growth remained stable at 0,3% in February from January. In real terms, house prices declined by 0,8% in January from November, which was the largest monthly real decline since January 2002 when it was also 0,8%.

The slowdown in year-on-year house price growth has accelerated since September last year, mainly driven by further interest rate hikes in the second half of last year, a significant slowdown in growth in real household disposable income up to late 2007, and the full implementation of the National Credit Act in mid-2007, which saw a tightening of lending requirements applicable to consumers and financial institutions.

The outlook for inflation does not appear to be positive over the short term, taking account of the latest trends with regard to the international oil price, the rand exchange rate, and food price inflation. The CPIX inflation rate is forecast to rise to a level of above 9,0% in the near term, which poses a risk to interest rates. However, against the background of consumer demand slowing down over a wide front, the Reserve Bank’s Monetary Policy Committee is not expected to hike interest rates at their next meeting in April. The forecast is for interest rates to remain unchanged in 2008. In view of these developments, house price growth is expected to slow down even further this year from current levels.

Compiled By: Jacques Du Toit
Published By: Absa Home Loans