Absa: House prices unsynchronised

Johannesburg - The latest trends in house prices in SA, as based on the Absa house price indices for small, medium-sized and large houses, show that price growth appears to have been largely unsynchronised up to August due to base effects. Market conditions and influencing factors may also differ between the various categories of housing.

According to Absa, nominal house price growth was forecast to be well within single digits for the full year of 2011, while in real terms - after adjustment for inflation - prices were expected to continue to decline in the rest of the year against the background of rising consumer price inflation. This is projected to be about 6% year-on-year (y/y) by year-end.

Jacques du Toit, senior property analyst at Absa Home Loans, noted that nominal house price growth improved further on an annual basis in the medium-sized segment in August this year, while price deflation continued to slow down in the small segment.

However, in the category of large houses prices were deflating in July and August, although only marginally. On a monthly basis price growth remained subdued in the small and medium-sized segments, with prices of large houses declining month-on-month.

Absa said that the latest trends in house prices, rising by about 1% y/y on average in nominal terms in the first eight months of 2011, were indicative of conditions in the local residential property market against the background of developments on the front of the macro economy and the household sector.

Consumer price inflation was accelerating, adversely affecting consumers' purchasing power, while interest rates were kept unchanged since the last cut in November 2010, and labour market conditions remained tight up to the second quarter of the year.

Real economic growth of 1.3% at a seasonally adjusted annualised rate was recorded in the second quarter of 2011 (4.5% in the first quarter), impacted by global and domestic demand trends, as well as labour action in some sectors of the economy during the quarter, which negatively affected production activities and service delivery, Absa pointed out.

Against the background of a struggling global economy, relatively low domestic economic growth, consumer and business confidence, and rising inflation, interest rates were expected to remain stable for the rest of 2011 and into 2012, the group added.

"In view of these developments and expectations, nominal house price growth is forecast to be well within single digits for the full year, while in real terms, prices are expected to continue to decline in the rest of the year in the face of rising consumer price inflation, which is projected to be around 6% y/y by year-end," Du Toit said.