Real Estate News – South Africa - Growth in house prices keeps on slipping

Nominal growth of 13,6% year-on-year in house prices was recorded in August 2006, compared with a revised growth rate of 14% in July, the latest Absa house-price index shows.

This brought the average price of a house in the middle segment of the market to about R816 000 in August. The average nominal year-on-year growth in house prices came to 15,1% in the first eight months of 2006.

In real terms, year-on-year growth of 8,6% was recorded in July, compared with a revised growth rate of 9% in June, based on the headline consumer price index. The average real year-on-year growth in house prices came to 10,8% in the first seven months of 2006.

On a month-on-month basis, nominal growth in house prices was 0,8% in August, compared with a revised growth rate of 0,9% in July. On a month-on-month basis, house prices declined by 0,1% in real terms in July this year (+0,2% in June).

This was the first real month-on-month price decline since April 2002 when it was -0,5%.

"In view of inflationary pressures still prevailing in the economy, together with factors such as the large current-account deficit and continued strong growth in domestic credit extension on the back of sustained high levels of consumer demand, the South African Reserve Bank's monetary policy committee
[MPC] is expected to hike interest rates further towards the end of the year.

"A 50 basis-point increase in rates is projected for October, but there is a risk of an even larger than 50 basis-point hike at the MPC meeting next month in an attempt to slow down growth in credit extension, especially mortgage advances growth, and dampen inflationary pressures in the economy," Absa said.

It added that another increase of 50 basis points is forecast for December. "This will bring prime and variable mortgage interest rates to at least 12,5% by year-end. The MPC is expected to continue hiking rates in a stepped way until the effect of the higher interest rates is visible in the economy.

"This implies that interest rate hikes could continue into the first half of 2007."

The bank added that in the remaining few months of 2006, nominal house-price growth is projected to continue its declining trend to register growth of between 12% and 13% for the full year, compared with a growth rate of 22,9% recorded in 2005.

"The expectation is for nominal year-on-year house price growth to be in single digits by the end of 2006," it said. -- I-Net Bridge

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