More pain for house sellers

Johannesburg - South African house prices fell by 2.5% year-on-year in October, as demand for property remained depressed, partly due to higher inflation and interest rates, a survey showed on Monday.

The monthly Standard Bank property gauge resumed its decline after a 3.6% rise in September. Prices had been falling since March.

Standard Bank said the median house price was unchanged from September's R580 000 while the five-month moving average was at -3.1% year-on-year, from -5.5%.

"The reduced affordability of housing, exacerbated by higher mortgage rates, high food and fuel prices and a slowing economy, led to a decline in the demand for residential property and a substantial softening in house price growth," Standard Bank said in a statement.

Interest rates have gone up by 5 percentage points since June 2006 - taking the central bank's repo rate to 12% - and together with higher inflation, have put a damper on household spending.

Tighter lending rules since June last year have also ended easy access to credit.

Standard Bank said the sector would likely remain under pressure until the second quarter of 2009.

"Residential property will remain in the doldrums until such time that fundamental drivers of the market take a turn for the better; that may only happen in the second quarter next year," it said.

"Even then, households may first want to normalise their personal finances before taking up new debt."

The ratio of household debt to disposable income eased to 76.7% in the second quarter of 2008, after hitting a record 78.2% in the first quarter.

Economists say interest rates may start falling in the first quarter of 2009 after the targeted CPIX inflation slowed for the first time in a year in September to 13% year-on-year, from a record high of 13.6% in August.

- Reuters