House price growth still declining

Nominal house price growth of 12,7% year-on-year was recorded in October 2006 compared with a revised growth rate of 13,5% in September. This brought the average price of a house in the middle segment of the market (see explanatory notes) to R830 700 in October. The average nominal year-on-year growth in house prices came to 14,7% in the first ten months of 2006.

In real terms, year-on-year growth of 7,8% was recorded in September compared
with a revised growth rate of 8,1% in August, based on the headline consumer
price index. The average real year-on-year growth in house prices came to
10,2% in the first nine months of 2006.

On a month-on-month basis, nominal growth in house prices was 0,6% in October
compared with a revised growth rate of 0,8% in September. House prices rose by 0,6% month-on-month in real terms in September (0,1% month-on-month in August).

Inflationary pressures are still visible in the economy and CPIX inflation is forecast to move towards the 6% level by end-2006/early 2007. Against this background, interest rates are projected to rise further, by 50 basis points at each of the Monetary Policy Committee meetings in December this year, and in February and April next year. This will bring the prime interest rate and the variable mortgage interest rate to 12,5% at year-end and 13,5% by  mid-2007.

As a result of these expectations, house prices are forecast to increase by about 14% in nominal terms in 2006, taking into account price growth of 14,7% on average recorded in the first ten months of the year. Nominal house price growth of around 6% is expected for 2007, with prices declining by almost 2% in real terms next year. This will be the first real decline in house prices since 1999.

Jacques du Toit, Senior Economist
Published by: Absa Group Economic Research