Pretoria - The slowdown in the residential property market is worsening, with the rate of growth in house prices declining from 19.6 percent in August to 17.6 percent last month, according to the latest Absa house price index released yesterday.

Jacques du Toit, a senior economist at Absa economic research, said last month's growth in house prices was the lowest year-on-year growth since December 2002, when it was 17.3 percent.

The average nominal year-on-year growth in house prices during the first nine months of this year was 24.3 percent compared with 31.4 percent in the corresponding period last year.

Excluding the impact of inflation, house prices increased year on year by 15.1 percent in August this year, while the average real growth in the first eight months of this year was 21.4 percent compared with 30.9 percent in the corresponding period last year.

This was based on a headline inflation rate of 3.2 percent on average during the first eight months of this year compared with 0.7 percent during the corresponding period last year.

Du Toit stressed last month that house prices were not declining, although the rate of increase in prices was lower, which was indicative of a definite slowdown in the residential property market.

He added that the slowdown in the growth in house price was a natural reaction and due to resistance building up from buyers to relatively high prices, which had to have an impact on prices.

Absa said yesterday that house prices increased month on month by 0.6 percent last month compared with an increase of 0.8 percent in August this year.

Du Toit said that based on current interest rates and average house prices, the monthly mortgage repayment and the qualifying monthly income were 13.8 percent higher last month than in September last year.

"This implies that housing is, on average, still less affordable than a year ago."

Du Toit said that in view of recent trends in the international oil price and domestic fuel prices, CPIX inflation was expected to be under upward pressure during the rest of this year.

Interest rates were therefore forecast to remain at current levels until early next year, when a rate rise of half a percentage point might occur.

"Nominal house price growth of around 21 percent is projected for the year, compared with growth of more than 32 percent recorded in 2004," he said.

"The affordability of housing, taking into account house price, income and interest rate trends, will remain an important factor over the next 12 months, especially for first-time and low- to middle-income home buyers."

He said that next year nominal house price growth of between 5 percent and 10 percent was expected.

Article by: Roy Cokayne - www.busrep.co.za