Absa House price slows

South African nominal year-on-year (y/y) price growth in all three categories of housing - small, medium, and large houses - in the middle segment of the market slowed down further in August 2008, according to the latest Absa House Price Indices released.

The average nominal price of middle-segment housing increased by 1.7% y/y in August down from a revised growth rate of 2.6% in July.

The August growth rate was the lowest since January 1993, and brought the average nominal price of a house in this segment of the market to about 962,000 rand.

Against this background, the risk of nominal year-on-year house price growth moving into negative territory is increasing, Absa said.

In real terms prices declined for the sixth consecutive month in July, by 9.6% y/y (-7.7% y/y in June) based on headline CPI inflation.

This was the biggest real price drop since November 1992, when it was 9.8% y/y. On a month-on-month basis house prices were down in both nominal terms (-0.1% in August) and real terms (-2.1% in July), the bank said.

Nominal price growth with regard to small houses (80m -140m ) came in at 3.9% y/y in August 2008 (4.8% y/y in July). This brought the average nominal price of small houses to about 682,500 rand in August (0.1% up on July).

In real terms the average price of small houses dropped by 7.6% y/y in July after a decline of 5.7% y/y was registered in June.

In July the average real price of a house in the small category was down by 2.0% compared with June.

The average nominal price of medium-sized houses (141m -220m ) increased by 2.0% y/y in August this year (2.8% y/y in July), which brought the average price of housing in this segment of the market to around 946,200 rand.

Compared with July, nominal price growth of 0.2% was recorded. In real terms, the average price of medium-sized housing was down 9.3% y/y in July (-7.4% y/y in June). On a month-on-month basis, prices declined by a real 1.9% in July compared with June.

With regard to large houses (221m -400m ), nominal price growth of only 1.1% y/y was recorded in August this year, down from 2,9% y/y in July. On a monthly basis, the average price of a large house was a nominal 0.5% lower in August than in July. This brought the average price of housing in this category to a level of about 1.368 million rand in August.

Taking account of the effect of inflation, the average price of large houses was 9.3% y/y lower in July (-6.5% y/y in June), while in comparison with June this year, prices were down by a real 2.6% in July.

Looking ahead, Absa said the residential property market was expected to bottom in 2009, mainly as a result of declining inflation and interest rates during the course of next year.

"It is, however, only in 2010 that nominal price growth is expected to rise to a level of above 10% again, while real price growth is projected to turn positive in the same year after two years (2008 and 2009) of real price declines. In view of these expectations, late 2008/early 2009 will probably be the best time to buy property," Absa concluded.

Article from: www.sundaytimes.co.za