Absa forecasts contraction in house prices
March 7, 2008
By Roy Cokayne
Year-on-year growth in house prices, excluding the impact of inflation, might turn negative "in the near future", Absa warned yesterday.
Jacques du Toit, a senior economist at Absa, said house prices last declined in real terms on an annual basis in mid-1999.
Du Toit said this might happen because of the continuing decline in nominal house price growth and rising inflation.
His comments came after Absa's latest house price index revealed that month-on-month prices declined in real terms by minus 0.8 percent in January from December.
This was the largest monthly real decline in house prices since January 2002, when it contracted by the same percentage.
The index is based on the total purchase price of houses ranging between 80m2 and 400m2 and valued less than R2.9 million, for which Absa approved home loans.
Absa's index revealed that real year-on-year house price growth of only 0.6 percent was recorded in January this year compared with 2 percent in December, the lowest since the 1.4 percent recorded in September 1999.
The nominal year-on-year increase in house prices in the middle segment of the market slowed to 8.7 percent last month from a revised 9.9 percent in January.
Du Toit said house price growth had not been so low since the end of 1999. These trends indicated that the average price of a middle-segment house was R969 800 last month.
Absa's quarterly housing review, released yesterday, said middle-segment house prices increased in real terms by 7 percent last year compared with 10.1 percent in 2006, but luxury housing prices increased by only 1 percent year on year last year compared with 6 percent in 2006.
In addition, luxury housing prices dropped in real terms by minus 0.6 percent year on year in the fourth quarter of last year compared with an increase of 1.3 percent in the third quarter.
The review said: "This has been the first real price decline recorded in the luxury segment since the fourth quarter of 2002, when a drop of 0.7 percent year on year was registered, and can be ascribed to deteriorating market conditions."
Du Toit said the slowdown in year-on-year house price growth had worsened since last September, driven mainly by interest rate hikes in the second half of the year, a significant slowdown in household disposable income and the implementation of the National Credit Act, which tightened lending requirements for consumers and financial institutions.
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