House market still taking strain

Johannesburg - House prices in the middle segment of the market were down by 4.2% year-on-year (y/y) to R925 100 rand in July 2009 from -4.1% y/y in June, Absa reported on Thursday.

House prices are projected by Absa to decline further in nominal terms towards the end of 2009, and probably also into the early stages of 2010, but the pace of price deflation is expected to slow down in the second half of this year.

On a month-on-month basis, nominal house prices were 0.2% lower in July compared with a decline of 0.4% recorded in June. As a result of these trends, the average nominal price of middle-segment houses were in July at their lowest level since the second quarter of 2007.

"With South African house prices deflating since late 2008, this trend seems to be near the lower turning point on a year-on-year basis, while month-on-month price deflation has slowed down further in July after bottoming in March this year," said Absa senior property economist, Jacques du Toit.

In real terms, prices were down by 10.3% y/y in June this year, after declining by 10.9% y/y in May. This caused real house prices in June to reach their lowest level since mid-2005.

The average nominal price of small houses (80m²-140m²) was 4.8% y/y lower in July 2009, after declining by 4.7% y/y in June. The average nominal price of houses in this category was about R650 900 in July. In real terms prices dropped by 10.9% y/y in June (-11.3% y/y in May).

The average nominal price of medium-sized houses (141m²-220m²) declined by 4.8% y/y in July (-4.1% y/y in June after revision), which brought prices in this category of housing to an average of about R903 500. In real terms, the average price of a medium-sized house was down by 10.3% y/y in June this year.

The average nominal price of large houses (221m²-400m²) was up by a marginal 0.4% y/y in July (-0.3% y/y in June), which was the first year-on-year price rise since October last year.

The pace of nominal year-on-year price deflation in respect of large houses started to slow down in April this year.

"These developments with regard to the average price of large houses may be a result of higher-income households reaping the benefits of lower interest rates and price trends in this segment, while they may also be less influenced by the negative effects of current economic conditions," said Du Toit.

In July 2009, large houses was priced at about R1 390 700 in nominal terms. In real terms, the average price of large houses was a real 6.7% y/y lower in June, after declining by 8.3% y/y in May.

"Although the South African economy is currently in recession after contracting in both the fourth quarter of last year and the first quarter of this year, a bottoming in the cycle and a gradual recovery is expected in the second half of the year," says Du Toit.

For the full year nominal house prices are expected to decline between 3% and 3.5%, after prices increased by 3.7% in 2008. In real terms prices are projected to decline by about 10% this year.

"With nominal house price growth forecast to be relatively low in 2010, and consumer price inflation to average around 6% next year, real prices are set to decline for most of 2010 before turning positive," concludes Du Toit.

- I-Net Bridge