News from Moneyweb

Real decline in house prices - Bank forecasts first drop since 1999.

House prices in October grew at the slowest rate in more than six years, according to the Absa House Price Index (HPI) and the lows are expected to continue.

Last month, nominal house price growth of 12,7% year-on-year was recorded. This is the lowest growth since January 2000, when it was 11,8%.

In real terms, year-on-year growth of 7,8% was recorded in September compared with a revised growth rate of 8,1% in August, based on the headline consumer price index.

The average nominal house price growth for the first ten months of the year came to 14,7% and the bank forecasts a growth rate of 14% for the year.

Next year, it projects house price growth of around 6%. The bank noted that for the first time in seven years, prices are expected to decline by almost 2% in real terms.

Absa pointed out that inflationary pressures are still visible in the economy and CPIX inflation is forecast to move towards the 6% level by the end of this year or early 2007.

“Considering this, the bank projects interest rates to rise further,” explained Jacques du Toit, Absa senior economist.

Absa forecasts a 50 basis point increase at the next three Monetary Policy Committee meetings in December, February and April.

This will bring the prime interest rate to 12,5% at the year-end and 13,5% by mid-2007.

Article by: Gaylyn Wingate-Pearse - www.moneyweb.co.za