ABSA House Price Indices – SA House price growth coming to a virtual halt

In November 2008 nominal year-on-year house price growth was barely positive and at its lowest level since late 1992, according to Absa’s calculations. Nominal house price growth in all three categories of middle-segment housing (small, medium-sized and large houses) dropped further in November, while in real terms, prices were down by around 10% in October compared with a year ago.

Current economic conditions and expectations for the next 12 months on the global as well as the local front do not suggest a turnaround and significant recovery in the housing market in the near future.

The average nominal price of middle-segment housing (see explanatory notes) was up by a meagre 0,3% year-on-year (y/y) in November 2008, down from a revised growth rate of 0,7% y/y in October. These trends brought the average nominal price of a house in this segment of the market to about R963 500 in November, which was 0,1% lower than in October. Against this background, year-on-year nominal house price deflation in the middle segment of the market is expected by year-end or early 2009.

House prices in the middle segment of the market declined by a real 10,2% y/y in October (-10,5% y/y in September), based on headline consumer price inflation. The headline CPI inflation rate was lower at 12,1% y/y in October from 13,1% September and 13,7% y/y in August.

Nominal house price growth in respect of small houses (80m²-140m²) turned negative (-0,3% y/y) in November from a still positive growth rate of 0,9% y/y registered in October. The average nominal price of a small house was recorded at R670 300 in November, 0,5% lower than in the preceding month. In real terms the average price of houses in this segment dropped by 10,1% y/y in October compared with a year-on-year decline of 9,6% y/y recorded in September.

The average nominal price of medium-sized houses (141m²-220m²) increased by 1,1% y/y in November this year, down from a revised growth rate of 1,3% y/y in October. The average price of a house in this segment of the market was about R956 500 in November, which was 0,2% higher than in October. In real terms, the average price of medium-sized housing was down by 9,6% y/y in October after a decline of 10,0% y/y recorded in September.

The average nominal price of large houses (221m²-400m²) showed a negligible decline of 0,04% y/y in November compared with a revised positive growth rate of 0,7% y/y registered in October. The average price of a house in this category came to a level of about R1 381 100 in November. The average price of large houses was down by a real 10,2% y/y in October (-10,4% y/y in September).

The outlook for the residential property market towards the end of 2008 and into the first half of 2009 remains depressed. Nominal price growth in the middle segment of the market is projected at around 4% for 2008 (14,5% y/y in 2007), based on price trends in the first eleven months of the year. The forecast is for nominal house price growth to dip below 3% in 2009, with the market expected to bottom in the first half of next year and to recover gradually thereafter on the back of declining inflation and lower interest rates. In real terms, middle segment house prices are projected to drop by around 7% in 2008, with a further real decline of about 4,5% expected in 2009.

In respect of the various categories of housing (small, medium and large housing in the middle segment, as well as affordable and luxury housing), activity levels and price growth are expected to remain under pressure for most of the first half of 2009. All segments are forecast to pick up gradually towards the end of 2009, with the levels of activity and prices only to show a marked improvement in 2010.

Courtesy Jacques du Toit Senior Economist ABSA Bank

Explanatory notes:

The Absa House Price Indices, available back to 1966, are based on the total purchase price of houses in the 80m²-400m² size category, priced at R2,9 million or less (including improvements), in respect of which mortgage loan applications were approved by Absa. Prices are smoothed in an attempt to exclude the distorting effect of seasonal factors and outliers in the data. As a result, the most recent index figures may differ materially from previously published figures.

Disclaimer:

The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Absa Group Limited and/or the authors of the material.

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