SA's house prices have turned the corner

Fresh figures from Absa reinforce view "the worst is over"

Absa's latest house price indices reinforce the view that the worst is over for the residential property market.

It said on Thursday that the Absa House Price Indices up to August 2009 "indicate that year-on-year house price deflation in the middle segment of the South African housing market has turned the corner and is slowing down".

"On a month-on-month basis, house price deflation slowed down from April to June this year, with price inflation that was recorded in July and August. These month-on-month trends contributed to year-on-year price deflation tapering off in the past two months."

Said the bank, which has been closely monitoring residential property prices since the 1960s: "Nominal year-on-year house price deflation is expected to continue to slow down in the rest of 2009 and up to early 2010, before positive price growth will be recorded."

It forecasts house prices will decline by around 3% in nominal terms in 2009, while prices are projected to drop by almost 10% in real terms this year.

House price deflation is slowing down

Jacques du Toit, senior property analyst for Absa Home Loans issued the following report:

Year-on-year price deflation in the South African housing market appears to have turned the corner and is slowing down, according to Absa's calculations. On a month-on-month basis, house price deflation slowed down from April to June this year, with price inflation recorded in July and August. These month-on-month trends contributed to year-on-year price deflation tapering off in the past two months.

Middle-segment house prices (see explanatory notes) were down by 3,4% year-on-year (y/y) to around R933 300 in August 2009 (-3,7% y/y in July and -3,8% y/y in May after revision). On a month-on-month basis, prices were up by a nominal 0,2% in August, after a marginal increase of 0,03% was recorded in July. In real terms, prices were down by 9,7% y/y in July this year, after declining by 10% y/y in June.

In the category for small houses (80m²-140m²), the average nominal price was 4,9% y/y lower in August this year (also -4,9% y/y in July after revision). This brought the average nominal price of houses in this segment to about R648 100 in August. In real terms, prices dropped by 10,9% y/y in July, after a similar year-on-year price decline occurred in June.

The average nominal price of medium-sized houses (141m²-220m²) declined by 4,3% y/y in August (-3,9% y/y in July after revision), which brought prices in this category of housing to an average of about R908 700. This translated into a real price decline of 9,9% y/y in July this year (-9,7% y/y in June).

In respect of large houses (221m²-400m²), the average nominal price was up by 1% y/y in August (0,6% y/y in July after revision). This brought the average nominal price to R1 398 100 in August. In real terms, the average price of large houses was 5,7% y/y lower in July, compared with a decline of 6,6% y/y in registered June.

The South African economy is in recession after contracting for three consecutive quarters up to the second quarter of 2009. However, some positive developments with regard to various economic indicators were evident in recent

months, with the economy expected to bottom and starting to recover late this year.

These developments include:

  • Indications that the global economy may be on the path to recovery.
  • Real GDP contracted by 3% quarter-on-quarter (q/q) in the second quarter (-6,4% q/q in the first quarter).
  • The Reserve Bank's leading business cycle indicator increased for three consecutive months up to June.
  • CPI inflation slowed down to 6,7% y/y in July, while producer prices are in deflation since May.
  • Interest rates have been cut by a cumulative 500 basis points since late 2008, with another rate cut expected in the near term.
  • A surplus on the trade account was recorded for three consecutive months up to July.
  • The Purchasing Managers Index (PMI) is on a rising trend since May, and although still very low, it is at its highest level since January 2008.
  • The pace of nominal year-on-year house price deflation is slowing down, while prices are rising on a month-onmonth basis.
  • New vehicle sales volumes have trended upwards after bottoming in April.
  • The number of insolvencies in respect of individuals was markedly lower in the first half of 2009 compared with the same period last year.

Nominal year-on-year house price deflation is expected to continue to slow down in the rest of 2009 and up to early 2010, after which price growth is forecast to turn positive. House prices are forecast to decline by around 3% in nominal terms in 2009, while prices are projected to decline by almost 10% in real terms this year. Nominal house price growth of about 2% is forecast for 2010, with prices set to drop somewhat.

Article from: www.realestateweb.co.za