HOUSE prices in the middle segment of the market slowed to a nominal 8,7% last month from a revised 9,9% in January, the Absa House Price Index showed today.

House price growth has not been so low since the end of 1999, when it was 9,3%.

The average price of a house about R969,800 last month, compared with 962,000 in January. Nominal price growth of 10,6% year-on-year was recorded in December last year.

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, Absa noted.

On a month-on-month basis, nominal house price growth remained stable at 0,3% last month 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," Absa said.

However, against the background of consumer demand slowing down over a wide front, Absa is not expecting the Reserve Bank’s Monetary Policy Committee 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, the bank said.

Article from: www.businessday.co.za