ABSA House Price Index – South African House Prices marginally down in 2009 from 2008 levels
House prices marginally down in 2009 from 2008 levels
House prices declined marginally in nominal terms in 2009 compared with 2008, according to the latest calculations by Absa. Prices declined in the first half of 2009, but started to rise on a month-on-month basis since May. Taking account of the effect of inflation, house prices continued to decline in real terms up to November last year, although at a much slower pace than earlier in the year. 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 during this period.
Residential property transaction volumes increased further in the final quarter of 2009 after bottoming in the second quarter of the year. The higher level of activity, as well as rising nominal prices towards the end of last year, came on the back of declining interest rates and the selective relaxation of lending criteria by banks.
Middle-segment house prices (see explanatory notes) were marginally down by a nominal 0,2% in 2009 (+4,1% in 2008), after increasing by 5,6% year-on-year (y/y) to R1 010 700 in December. In real terms, middle-segment house prices were down by 1,1% y/y in November and down 7,4% y/y in the first eleven months of the year.
The nominal price of small houses (80m²-140m²) was down by an average of 2,8% y/y in 2009 (+5,5% in 2008). Prices dropped by 0,8% y/y to R670 400 in December last year. The average price of small houses was down by a real 8,8% y/y in November 2009, after declining by a revised 7,4% y/y in October.
Nominal price deflation with regard to medium-sized houses (141m²-220m²), averaged 2,9% in 2009, after positive growth of 4,8% was recorded in 2008. In December last year nominal price deflation came to 1,5% y/y, which brought the average price in this category of housing to around R931 900. Adjusted for inflation, prices declined by a real 7,9% y/y in November (-8,7% y/y in October after revision).
The average nominal price of large houses (221m²-400m²) increased by an average of 0,3% in 2009 (5,1% in 2008). Nominal price growth of 3,1% y/y 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% y/y was registered in this segment in November 2009 (-3,3% y/y in October).
On the economic front, South Africa appears to be out of recession after real annualised GDP growth of 0,9% was recorded in the third quarter of 2009, with growth estimated to have been around 1,5% 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% 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 in an attempt to keep inflation under control.
The household sector is still experiencing some financial strain. The ratio of household debt to disposable income remains relatively high at almost 80%, while real disposable income dropped further in the third quarter of last year in the wake of major job losses during the course of the year. Real disposable income growth is expected to turn positive again towards mid-year while the debt ratio is forecast to remain relatively stable at just below 79%.
The residential property market is expected to further gradually improve in 2010 on the back of 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. In view of the abovementioned developments and expectations, house prices are forecast to rise by between 6% and 7% in nominal terms this year, while in real terms, a marginal increase might be possible on the back of current projections for nominal house price growth and consumer price inflation.
Courtesy: Jacques du Toit Senior Economist ABSA Bank
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 R3,1 million or less in 2008 (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 and price growth data may differ materially from previously published figures.
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.