GROWTH in house prices in the middle segment of the market slowed to a nominal 11,2% year-on-year in December - the lowest price growth since December 1999, when it was 9,3%, the Absa house price index showed today.

Nominal price growth of 12,5% was recorded in November last year. The average price of a house was about R964,000 at year-end, bringing the growth in nominal terms to 14,5% compared with 15,2% in 2006 and 22,6% in 2005.

Real year-on-year price growth was only 3,8% in November (5,3% in October) - the lowest real growth since the 4,2% recorded in December 2002.

In the first eleven months of last year, real growth in house prices averaged 7,5%. The real growth rate is based on the headline consumer price index (CPI).

On a month-on-month basis, nominal house price growth slowed further to 0,3% last month from 0,4% in November. In real terms, house prices were unchanged in November from October.

On the back of exchange rate and oil and food price movements in recent months, inflationary pressures in the economy have mounted further, causing the CPIX rate to rise to a level of 7,9% in November last year, which is well above the 6% upper limit of the inflation target range. This was the highest CPIX inflation rate recorded since the 8,5% of April 2003.

"Inflation is expected to remain under upward pressure over the short term in view of an oil price of just below $100 per barrel and the rand exchange rate edging on R6,90 to the US dollar. These developments may lead to a further increase in fuel prices next month on the back of the current under-recovery in both petrol and diesel prices. Against this background, CPIX inflation is forecast to peak at a level of well above 8% in the first quarter of 2008, which does not bode well for the interest rate outlook over the short term," said Absa senior property analyst Jacques du Toit.

Growth in nominal house prices is forecast to taper off somewhat further this year after the downward trend in price growth accelerated towards the end of last year.

Nominal growth in house prices may drop to as low as 9% this year, largely driven by the tightening of monetary policy since mid-2006, the impact of the National Credit Act on the growth in credit extension to consumers, as well as an expected slower pace of economic expansion and lower growth in real household disposable income during the course of the year, said Du Toit.

Article from: www.businessday.co.za