Recovery gains momentum

The steady recovery in the residential property market is expected to gather further momentum in 2010, Absa said in its housing review on Monday.

This was as a result of better economic conditions, the lagged effect of lower interest rates and less tight credit conditions, Absa's Jacques du Toit said.

"However, the positive effect of lower interest rates will gradually wear off towards the end of the year," he said. He expected nominal house price growth of around six percent for 2010.

"Based on this house price forecast and a projected average consumer price inflation rate of also six percent in 2010, no real price growth is expected this year."

Looking back at house price trends in 2009, he said the housing market had experienced tough conditions on the back of an economic recession and the lagged effect of rising interest rates between mid-2006 and mid-2008.

"The result was that house prices dropped in nominal terms on a year-on-year basis in the first half of last year.

"However, as the effect of declining interest rates since late 2008 started to filter through to the property market, house prices started to rise steadily in the second half of the year."

In real terms — after adjustment for the effect of consumer price inflation — house prices continued to decline up to the end of 2009.

However, the pace of price deflation slowed down from more than 10 percent year-on-year in the first half of the year to just more than one percent year-on-year in the fourth quarter.

"This was the result of nominal price growth and a lower inflation rate towards the end of the year," Du Toit said.

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