/ 13 December 2002

ABSA House Price Index eases to 11%

South African commercial bank ABSA today released its monthly House Price Index, which showed that the year-on-year (y/y) increase in house prices slowed to 11% y/y, the slowest y/y increase since November 1999, from 11,7% y/y in October and this year’s peak y/y rate of 12,4% in July.

The month-on-month (m/m) growth in house prices eased to 0,46% in November from 0,70% m/m in October.

ABSA said the South African residential property market continued to perform relatively strongly, despite the higher interest rates and inflation during the course of 2002, which have had a negative effect on the cost of living.

During the first 11 months of 2002, house prices increased by 11,95% over the same period last year. Last year, the average annual increase was 12,9% compared with 18,3% in 2000 and only 5,2% in 1999.

ABSA economists believe that the decline in house price increases is near to bottoming out, thanks to what is believed to be the end of the recent upward trend in interest rates.

The announcement by the South African Reserve Bank (SARB) that it would leave interest rates unchanged at its November Monetary Policy Committee meeting, provided a mild boost to the housing market.

However, it is believed that price increases will move sideways in the coming months.

An anticipated interest rate cut by the SARB in March, accompanied by declining consumer price inflation, is expected to signal the start of a strengthening trend in the housing market.

This is expected to translate into nominal year-on-year increases at higher rates than the current ones, as well as a return to strongly positive real price increases in line with declining consumer price inflation throughout 2003.

As South Africa’s largest home loan provider, ABSA has up until this year released a quarterly survey of house prices based on loan applications to ABSA.

The index is based on the total purchase price of houses including swimming pools and other improvements for houses valued at less than 1 million rand and measuring between 80 square metres and 400 square metres.

The HPI has been calculated back to January 1998 and show that the (y/y) increase peaked at 21,4% in October 2000. Base effects meant that a year later, the y/y increase was only 11,1% in October 2001.

This was the start of three consecutive months of 11,1% y/y increases. Since then there has been steady increase in the y/y growth rate to 12,4% in May this year, which was the start of three consecutive months of 12,4% y/y increases. The y/y rate then eased to 12,1% in August and 11,9% in September. – I-Net Bridge