Johannesburg - Average house prices dropped by 6.6% year-on-year in October, according to the 'oobarometer' released on Friday by mortgage originators ooba.

The decline eclipsed the 5.5% year-on-year decline shown in August.

"After recording a positive year-on-year increase of 3.4% in September, average house prices have again dropped", said Saul Geffen, chief executive of ooba.

He noted that as anticipated, September's increase was not an indication of an upward trend and that the index was expected to continue to show slight negative growth into 2009.

The barometer also showed that the average first-time buyer's purchase price continues to increase gradually - up 4.5% from R536 475 in October 2007 to R560 623 in the same month this year.

Bank decline ratios, which is the average percentage of all home loans applications initially rejected, have shown a slight improvement to 49.1%, a decrease of 1.4% on September's figure of 51%, but still considerably higher at 7.7% up from the prior year.

"Banks are extremely cautious in their approach to lending given the credit crisis, NCA implications and deteriorating economic outlook," said Geffen, adding that, however, average initial decline rates varied widely from bank to bank, ranging from 34.4% to 64.8%.

An average of 32% of applications declined by one lender were subsequently granted by another. However, this ratio also ranged widely, from 24.2% to 39.2% for the different lenders.

Geffen said that the higher decline ratio reflected the impact of the National Credit Act, as the new legislation required banks' credit decisions to be based on net disposable income, which had been materially impacted by high interest rates.

According to the oobarometer, the average deposit continues to increase in October, now averaging 19.7% of purchase price. This is a sharp year-on-year rise of 48.1% from the previous year.

- I-Net Bridge