Almost, but not quite

House price deflation may be bottoming out, according to Absa's House Price Index released on Thursday.

"With South African house prices deflating since late 2008, this trend seems to be near the lower turning point on a year-on-year basis, while month-on-month price deflation has slowed down further in July after bottoming in March this year," said Absa analyst Jacques du Toit.

In the middle segment of the market, house prices were down by 4.2 percent year-on-year to R925 100 in July 2009, following a decline of 4.1 percent year-on-year in June.

On a month-on-month basis, house prices were 0.2 percent lower in July compared with a decline of 0.4 percent recorded in June.

"As a result of these trends, the average nominal price of middle-segment houses were in July at their lowest level since the second quarter of 2007," Du Toit said.

Although the South African economy was in recession after contracting in both the fourth quarter of last year and the first quarter of this year, a bottoming in the cycle and a gradual recovery was expected in the second half of the year, Du Toit said.

Real gross domestic product (GDP) was forecast to contract by about two percent in 2009, after increasing by 3.1 percent in 2008, he said.

The economy was last in recession in 1992, when real GDP dropped by 2.1 percent.

According to Du Toit, house prices were projected to decline further towards the end of 2009, and probably also into the early stages of 2010, but the pace of price deflation was expected to slow down in the second half of 2009.

For the full year house prices were expected to decline between three percent and 3.5 percent, after prices increased by 3.7 percent in 2008.

Article by: IAfrica