ABSA measures marginal decrease in house prices

House prices declined marginally in nominal terms last year compared with 2008, according to the latest calculations by Absa.

The Absa House Price Indices are based on the total purchase price of houses in the 80m178 to 400m178 size category, priced at R3.1 million or less in 2008 (including improvements), in respect of which mortgage loan applications were approved by Absa.

Prices declined in the first half of 2009, but started to rise on a month-on-month basis from May. Taking into account the effect of inflation, house prices continued to decline in real terms up to November last year, although at a much slower pace. This was the net result of rising prices in nominal terms in the second half of the year, while inflation tapered off to lower levels.

Residential property transactions increased further in the final quarter of 2009 after bottoming in the second quarter. The higher level of activity, as well as rising nominal prices towards the end of last year, followed declining interest rates and the selective relaxation of lending criteria by banks.

Middle-segment house prices were marginally down by a nominal 0.2 percent in 2009 (+4.1 percent in 2008) after increasing by 5.6 percent year-on-year to R1 010 700 in December. In real terms, middle-segment house prices were down by 1.1 percent year-on-year in November and down 7.4 percent in the first 11 months of the year.

The nominal price of small houses (80m178 to 140m178) was down by an average of 2.8 percent year-on-year in 2009 (+5.5 percent in 2008). Prices dropped by 0.8 percent to R670 400 in December last year. The average price of small houses was down by a real 8.8 percent year- on-year in November 2009, after declining by a revised 7.4 percent in October.

Nominal price deflation on medium-sized houses (141m178 to 220m178) averaged 2.9 percent in 2009 after positive growth of 4.8 percent was recorded in 2008. In December last year, nominal price deflation came to 1.5 percent year-on-year, which brought the average price in this category of housing to around R931 900. Adjusted for inflation, prices declined by a real 7.9 percent year-on-year in November (-8.7 percent in October after revision).

The average nominal price of large houses (221m178 to 400m178) increased by an average of 0.3 percent in 2009 (5.1 percent in 2008). Nominal price growth of 3.1 percent year-on-year was recorded in December last year, which brought the average price of a large house to about R1 411 800. Real price deflation of 2.9 percent year-on-year was registered in this segment in November 2009 (-3.3 percent in October).

On the economic front, South Africa appears to be out of recession after real annualised GDP growth of 0.9 percent was recorded in the third quarter of 2009, with growth estimated to have been around 1.5 percent in the fourth quarter. The economy is expected to improve further during the course of 2010 and record real GDP growth of about 2.5 percent this year. With inflation forecast to be under upward pressure in the near term, interest rates are expected to remain unchanged for most of the year before being hiked late this year.

The ratio of household debt to disposable income remains relatively high at almost 80 percent, whereas real disposable income dropped further in the third quarter of last year in the wake of major job losses. Real disposable income growth is expected to turn positive again towards mid-year and the debt ratio is forecast to remain relatively stable at just below 79 percent.

The residential property market is expected to further gradually improve in 2010 following better economic conditions, the lagged effect of lower interest rates and less tight credit conditions. However, the positive effect of the lower interest rates is set to diminish towards the end of the year.

House prices are forecast to rise by between six and seven percent in nominal terms this year, while in real terms a marginal increase might be possible.

Weekend Property supplement (Saturday Argus)

Posted at 08:52AM Feb 01, 2010 by Editor in Residential  |