Johannesburg - The price of middle segment houses grew by about 7% in 2010, according to the Absa House Price Index released on Thursday.
"Nominal house price growth of 6.8% was recorded in the middle segment of the South African housing market in 2010, based on Absa's calculations," said Jacques du Toit, sectoral analyst at Absa Retail Bank.
In real terms, which factors in the effects of inflation, house prices were estimated to have risen 2.4% last year.
Du Toit predicted gradual improvement over 2011.
"House price growth is set to start 2011 at a low level, but is forecast to rise gradually during the course of the year to average a nominal 3%, mainly on the back of projected higher economic growth and the effect of continued low interest rates."
Growth in the first half of 2010 for middle-segment homes for which Absa approved mortgage finance, was "on a noticeable upward trend".
"However, price growth peaked around mid-year and slowed down significantly to an average of 2.6% year-on-year in the second half of the year.
"The slower pace of house price growth in the last six months of 2010 is related to the base effect of a recovery in house price growth in the second half of 2009, while economic conditions such as slowing economic growth, job losses, stagnant consumer confidence and fewer interest rate cuts than in 2009, also played a role during 2010."
Du Toit said although interest rates were at their lowest level in more than 30 years, a relatively high household debt-to-income ratio - almost 79% - and the National Credit Act impacting banks' credit criteria, were limiting many consumers' ability to take up credit and increase their debt.
He said the average value of small houses (80m²-141m²) increased by a nominal - where the effects of inflation are not taken into account - 14% in 2010.
The average price of a small house was about R706 300 by the end of last year.
After adjusting for the effect of consumer price inflation, price growth came to 1% year-on-year in November.
The average price of medium-sized houses (141m²-220m²) was about R967 600 in December.
Large houses (221m²-400m²) saw their average nominal price level go up by 3.4% in 2010. The average price of a large house was around R1.425m by year-end. In real terms the price of a large house was down by 2.7% year-on-year in November.
Du Toit predicted nominal house price growth of about 3% for 2011, compared to 6.8% in 2010.
In real terms, house prices were expected to decline by around 1% in 2011, compared to growth of 2.4% in 2010. This prediction assumed consumer price inflation forecast to average 4.1% year-on-year in 2011.