House prices still falling

House prices have continued to fall, Absa said on Thursday as it released its house price index for February.

In nominal terms, middle-segment house prices dropped by 1.3 percent year-on-year in February, after declining by 0.9 percent year-on-year in January.

In real terms – or adjusted for inflation – prices were down by 8.3 percent year-on-year in January from a drop of 9.6 percent year-on-year in December last year.

In view of an expected poorly performing economy in 2009, together with indications of sharply declining inflation in the first half of the year, the Reserve Bank's Monetary Policy Committee was forecast to cut interest rates by a further 350 basis during the rest of 2009, Absa said.

This would bring commercial bank's prime and mortgage interest rates to 10.5 percent by year-end, the level at which these interest rates bottomed before starting to rise in June 2006.

Interest rates have already been cut by a cumulative 150 basis points since December last year. According to Absa, the household sector would continue to experience some financial strain this year, despite declining inflation and interest rates.

"This view is closely related to an expected poorly performing economy, which may lead to further job losses, increased negative sentiment in the household and business sectors, and lower levels of consumer and investor confidence."

As a result, the housing market was expected to remain under pressure for much of 2009, with house prices forecast to drop by a nominal three to four percent and a real eight to 8.5 percent this year.

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