House price growth slows further

I-Net Bridge

NOMINAL house price growth of 13,5% year-on-year was recorded last month compared with a revised growth rate of 14,2% in June, the latest Absa House Price Index revealed today. This brought the average price of a house in the middle segment of the market to about R806 500 last month.

The average nominal year-on-year growth in house prices came to 15,2% in the first seven months of the year.

In real terms, growth of 8,9% was recorded in June compared with a revised growth rate of 10,3% in May, based on the headline consumer price index. The average real year-on-year growth in house prices came to 11,2% in the first six months of the year.

On a month-on-month basis, nominal growth in house prices was down to 0,6% last month compared with a revised growth rate of 0,8% in June. Real month-on-month growth of only 0,1% was recorded in June this year compared with 0,3% in May.

"If this trend in the real month-on-month growth is to continue, house prices will in effect decline in real terms in the near future," Absa said today.

Inflationary pressures in the economy mounted further in recent times, with PPI inflation jumping to 7,5% in June (5,9% in May) and CPIX inflation increasing to 4,8% in June (4,1% in May).

CPI food inflation was higher at 7,7% in June (6,9% in May), the international oil price remained well above $70/barrel, domestic fuel prices increased again this week and the rand exchange rate has weakened against the major international currencies since early May, Absa added.

In the remaining few months of the year nominal house price growth was expected to continue its declining trend to register growth of about 12% on average for the year as a whole, compared with a growth rate of 22,9% recorded last year, said Absa.

Annual average nominal growth of 12%, it said, would be the lowest growth in nominal house prices since 1999, just after the interest rate shock of 1998, when it was only 4,6%. That was also the most recent year in which house prices declined in real terms, by 0,6% year-on-year.

"In 2006 real price growth of around 7% is expected," Absa said.

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