Erwin Rode, the chief executive of Rode & Associates, said yesterday that house price increases were not expected to exceed the inflation rate for the next three to five years.

Rode said fundamental house prices were still overvalued by about 15 percent based on real house prices since 1966, using building costs as a deflator.

This meant house prices were relatively unaffordable to large sections of society, restricting the upward potential of prices.

"This implies that in real terms house prices must come down for about four years by 3 percent a year before it hits the floor and before we can expect any noticeable growth greater than the inflation rate."

Jacques du Toit, a senior property analyst at Absa, was also downbeat about house price growth. Real house price growth would be negative until early 2013, despite an expected slight uptick next year, he said.

Some structural issues, such as employment and consumer debt levels, would not go away in the short term and these were among the reasons nominal house price growth would remain relatively low.

Rael Levitt, the chief executive of Auction Alliance, said the discount available on properties sold on auction widened to almost 40 percent last month, far below the historic average and close to the levels seen in December 2008.

Levitt said this signalled further house price weakness and suggested a significant relapse in prices achieved at auctions since early this year.

It was also further evidence that the balance of power between buyers and sellers in the conventional market had begun to shift dramatically.

"The recent double-dip (economic recession) headlines have raised the likelihood of more property price falls. Auctions are simply where demand and supply meet and right now supply is far exceeding demand and auction prices are quickly reflecting this," he said.

Levitt said the steady drop in prices this year, together with "a recent cool-off" in activity, showed that house prices were far from their bottom point.

FNB's latest residential property barometer revealed the average time a house remained on the market before being sold rose to over 17 weeks in the third quarter from just over 15 weeks the previous quarter.

The proportion of sellers who had to drop their asking price to make the sale rose to 91 percent in the third quarter from 87 percent, with the average price reduction increasing to 13 percent from 11 percent.

Article from: www.iolproperty.co.za