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Standard Bank: House price growth stalls

Johannesburg - House price growth has slowed to a crawl in September. according to a report by Standard Bank.

Standard Bank's median house price (smoothed) posted a growth rate of 0.6% year-on-year (y/y) in September, from 1.6% y/y in August, whereas growth in real terms remained negative.

The slowdown in house price growth runs parallel with the weakening South African economy. Gross domestic product (GDP) growth slowed to 1.3% quarter-on-quarter (q/q) seasonally adjusted annual rate (saar) in the second quarter of 2011, from 4.5% q/q (saar) in the first quarter.

Standard Bank said that household consumption was undermined by receding real income growth and the sluggish SA labour market. Growth in household disposable income slowed to 4.1% q/q (saar) in the second quarter of this year, from 5.4% q/q (saar) in the first quarter.

This slowdown was mirrored by real household consumption expenditure growth decelerating to 3.8% q/q in the second quarter, from a robust 5.2% q/q (saar) in the first quarter.

The bank said that household credit growth muted despite a historically low interest rate environment. Growth in total credit extension to households eased to 5.2% y/y in August, from 6.6% y/y in July. Growth in mortgage advances mirrored this decline, registering 1.6% y/y in August, from 3.0% y/y in July.

The combination of household disposable income growth and historically low nominal interest rates (the prime overdraft rate has remained steady at 9% since November 2010) has contributed to the slight improvement in the ratio of household debt to disposable income, to 75.9% in the second quarter of the year from 76.8% in the first.

However, households continue to carry a sizeable debt burden, with the household debt to income ratio in the second quarter not significantly different from its 2008 peak of 82%.

The report said that building activity remained subdued, with house price growth likely to follow suit. The value of residential buildings completed (in real terms) for the period January to July 2011 fell by 7.4%, from the corresponding period in 2010.

Residential contractors, as surveyed by the Bureau of Economic Research, suffered a fall in business confidence to 20 index points in quarter three, from 24 index points in the second quarter.
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