Absa reports lowest house price growth in almost nine years

by Rodney Hayter

JOHANNESBURG (August 07) - Nominal price growth in all three categories of housing in the middle segment of the market, as defined by Absa, slowed down further in July this year, whereas prices dropped in real terms (i.e. after adjustment for inflation).

This, the bank says in its comment on the data, was the result of deteriorating market conditions on the back of rising inflation and interest rates, adversely affecting household finances and the affordability of housing.

The average nominal price of middle-segment housing increased by 3,2% year-on-year in July this year, down from a revised growth rate of 4,0% in June. The July growth rate was the lowest since September 1999, and brought the average nominal price of a house in this segment of the market to about R967 600.

Compared with June this year, house prices increased by only 0,1% in July. In real terms, prices dropped for the fifth consecutive month in June, by 7,3% year-on-year (-6,2% year-on-year in May), based on headline CPI inflation. On a month-on-month basis house prices were down by a real 1,1% in June.

In the category of small houses (80m²-140m²), nominal price growth slowed to a level of 4,9% year-on-year in July 2008 compared with a growth rate of 6,1% year-on-year registered in June. This brought the average nominal price of houses in this category to about R680 800 in July, with prices declining by a marginal 0,1% on the preceding month.

Taking account of the effect of inflation, Absa says the average price of small houses dropped by a real 5,4% year-on-year in June this year after a decline of 4,1% year-on-year was recorded in May. In June this year average house prices in the small category was 1,3% lower than in May.

Nominal year-on-year price growth in respect of medium-sized houses (141m²-220m²) came in at just 2,1% in July 2008 (3,3% year-on-year in June), which brought the average price to around R937 300 in July. Compared with June, no nominal price growth was recorded, while prices have declined by 1,2% in nominal terms between December last year and July this year.

In real terms, the average price of medium-sized housing was 7,9% year-on-year lower in June (-6,3% year-on-year in May). On a month-on-month basis, prices declined by a real 1,4% in July compared with June, after declining by 1,3% in real terms in comparison with May.

With regard to large houses (221m²-400m²), Absa reports a nominal price growth of 3,6% year-on-year was recorded in July 2008, down from 5,3% year-on-year in June. On a monthly basis, the average price was a nominal 0,3% lower in July than in June. This brought the average price in this category of housing to a level of about R1 385 800 in July. Taking into account the effect of inflation, the average price of large houses was 6,1% year-on-year lower in June (-4,1% year-on-year in May), while in comparison with May this year, prices were down by a real 1,5% in June.

On the back of current and expected economic conditions over the next 12 months, nominal price growth across all three categories of housing in the middle segment of the market is forecast by Absa to be markedly lower for the full year and in 2009 compared with the past number of years, with prices set to decline in real terms this year and next year. This will be the first annual real decline in house prices since 1999.

Economic conditions are expected by Absa to improve in the second half of 2009, to a large extent as a result of declining inflation and interest rates. On the back of these expectations, the residential property market is set to recover gradually from late next year with the household sector experiencing less financial pressure. Nominal house price growth is forecast to rise to levels of above 10% from 2010, with real price growth projected to turn positive again in 2010.

Editor’s Note: This month sees the expansion of the Absa House Price Index, compiled and published for the first time back in May 2002. Traditionally the House Price Index focused on the entire middle segment of the residential property market, which comprises small houses (80m²-140m²), medium-sized houses (141m²-220m²) and large houses (221m²-400m²) up to R2,9 million.

Price indices with regard to each of the abovementioned categories of middle segment housing at a national level will be published in future, including the weighted average price index for these three categories combined.

Article by: Rodney Hayter - http://www.rodneyhayter.com