House prices will fall in 2007

House prices will fall by 2.0 percent next year in real terms, the first real decline since 1999, Absa said on Monday.

According to the Absa House Price Index nominal house price growth of 12.7 percent year-on-year was recorded in October 2006, compared with a revised growth rate of 13.5 percent in September.

The bank's researchers said this brought the average price of a house in the middle segment of the market to R830 700 in October.

Inflationary pressures remain

"In real terms, year-on-year growth of 7.8 percent was recorded in September compared with a revised growth rate of 8.1 percent in August, based on the headline consumer price index. The average real year-on-year growth in house prices came to 10.2 percent in the first nine months of 2006," the report, released on Monday, held.

On a month-on-month basis, nominal growth in house prices was 0.6 percent in October compared with a revised growth rate of 0.8 percent in September. House prices rose by 0.6 percent month-on-month in real terms in September (0.1 percent month-on-month in August).

"Inflationary pressures are still visible in the economy and CPIX inflation is forecast to move towards the 6.0 percent level by end-2006/early 2007," the Absa researchers held.

Prime rates up

"Against this background, interest rates are projected to rise further, by 50 basis points at each of the Monetary Policy Committee meetings in December this year, and in February and April next year.

"This will bring the prime interest rate and the variable mortgage interest rate to 12.5 percent at year-end and 13.5 percent by mid-2007."

The Absa House Price Index is based on the total purchase price of houses in the 80 square metre to 400 square metre size category, valued at R2.6-million or less in 2006 (including improvements), in respect of which loan applications were approved by Absa.

Prices are smoothed in an attempt to exclude the distorting effect of seasonal factors.

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