House price growth nears peak

Johannesburg - Home values increased further in June 2010, but there are early indications that year-on-year (y/y) price growth may peak in the near future, Absa Group [JSE:ASA] said on Thursday.
  
In Absa's latest price index, the average nominal value of small, medium and large houses for which Absa approved mortgage finance increased by a weighted 14.8% y/y in June.
  
This, said property analyst Jacques du Toit,  brought the average price of a middle-segment house to about R1 083 700.
  
In May 2010 nominal home values in the middle segment of the market increased by a revised 14.7% y/y.
  
In real terms (after adjustment for the effect of inflation) the average value of middle-segment homes was up by 9.7% y/y in May. This was influenced by a further slowdown in consumer price inflation to 4.6% y/y from 4.8% y/y in April.
  
Turning to prospects for the rest of the year, Du Toit said consumer price inflation was forecast to bottom in the third quarter of 2010, rising again in the final quarter of the year on the back of inflationary pressures.
  
"Double-digit administered price inflation and widespread wage hikes of well above inflation are regarded as the main risks to the inflation outlook over the short to medium term."
    
Based on these expectations in respect of inflation, interest rates were forecast to remain at current levels for the rest of the year, providing no further stimulus to the residential property market.
  
Price growth in the South African housing market therefore appeared to be nearing an upper turning point.
  
"Year-on-year house price growth is expected to slow down in the latter half of the year, mainly driven by the base effects of a recovery in property prices in the second half of 2009," Du Toit said.

- Sapa