House prices not expected to grow

Dec 10 2012 10:16
Soweto-house, suburb, johannesburg

(File) (Shutterstock)

Johannesburg - Absa has predicted relatively low nominal house price growth for the next year. 

"Relatively low nominal house price growth is forecast for the next 12 months, and with headline consumer price inflation projected to average around 5.5% in 2013, some real house price deflation may still occur for most of next year," it said on Monday 

The banking and financial services group said year-on-year growth in the average value of homes in the middle segment of the South African housing market increased in November 2012, but that month-on-month price growth continued its downward trend. 

This was expected to affect year-on-year price growth in the near future. 

Middle-segment home values showed a nominal rise of 5% year-on-year in November 2012, after increasing by a revised 3.3% year-on-year in September. 

In the first 11 months of 2012, house prices were unchanged compared with the corresponding period last year, and were largely affected by price deflation in the small segment of the market up until August. 

Real price deflation was still evident in middle-segment housing up until October, but its momentum was slowing down, with the small and medium-sized categories showing some real year-on-year growth in October. 

Real price calculations are based on nominal prices deflated by the headline consumer price index. 

Consumer price inflation was 5.6% year-on-year in October, averaging 5.7% year-on-year in the first 10 months of the year. 

The average nominal value of homes in each of the three middle-segment categories of the housing market was as follows in November 2012: 

Small homes (80m2 to 140m2) R778 200; medium-sized homes (141m2 to 220m2) R1 064 800; and large homes (221m2 to 400m2) R1 575 500. 

South Africa's real Gross Domestic Product slowed down from an annualised 3.4% in the second quarter of 2012 to 1.2% in the third quarter. 

This was because of major production losses in mining and some other sectors of the economy during the third quarter. 

Economic growth for the full year was forecast at around 2.5%, with global economic trends and domestic developments expected to be key drivers of the country's economic performance in 2013. 

Inflationary pressures coming from trends in food prices, transport costs and property running costs had caused a rise in headline consumer price inflation in recent months, Absa said. 

However, interest rates remained unchanged after a 50 basis points cut in July this year, with the SA Reserve Bank expecting inflation to stay below the 6% level in 2013 and 2014. 

Against the background of current trends in and prospects for the economy, inflation and household finances, domestic interest rates were forecast to remain low over the next two years. 

"With house price growth slowing down on a month-on-month basis since mid-2012, year-on-year price growth is expected to be reflective of this development in the first half of 2013," the company said. 

The information is based on data that includes mortgage applications approved by the company.


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